Buy To Let Mortgages
A buy to let mortgage is for people who are buying a property for investment and intend to rent it out rather than live in it.
Building wealth through property...
To talk about the benefits of property investment is beyond the scope of this guide sufficed to say that property prices have doubled every 8 years for the last 40 years.
This is despite two major crashes in the 80's and the 90's. More people have generated wealth from property than through any other business, and indeed if you read the times 500 rich list you'll see that property is the most common vehicle by which their wealth has been generated.
As a result more and more people are buying property for investment in order to build long term wealth as part of their retirement plan.
For those of you who wish to learn more about property investment, you can check out our other site www.propertyinvestmentcourse.net for a free 5 part course on property investment and development.
As a property investor I take an active interest in the Buy to Let mortgage market and I am constantly encouraged by how much more friendly lenders in this segment are becoming all the time.
Lending flexibility...
Lending is much more flexible with Buy to Let mortgages than with residential mortgages. The reason is that a Buy to Let lenders focus more on the investment property you're buying and the rent it will achieve and less on your income and personal details.
The most important factor in determining how much to lend you is the rent that the property you're looking to purchase achieves. Different lenders use different rental calculations to work out how much to lend you.
Deposit required...
As a general rule of thumb you can get a buy to let mortgage up to 90% of the property value, or put another way you'll need to put down 10% deposit in order to get a buy to let mortgage.
Another condition is that most lenders will require that you be an existing home owner before buying a buy to let and in most cases won't lend to first time buyers.
Having said that the market is expanding dramatically so if you are a first time buyer looking to buy a property for investment rather than to live in then fill in the enquiry form and we can find a suitable lender for you. However just know that your lending options are far wider when you're an existing home owner than if you're a first time buyer.
Required rental yield...
If you're new to property investment and buy to let then just remember that you need to know accurately how much the property you intend to purchase can rent for. Every lender has a set formula and requirement for the level of rent that needs to be achieved in order for them to lend you the amount of money you need.
Some lenders will require that the rent just cover the mortgage while others will demand that the rent exceeds the mortgage by at least 25%, and others will have yet another formula. This can get confusing, so as a rule of thumb if you want to borrow up to the full 90% of the property value then make sure that the rental yield on a property is at least 6.75%.
How do you work out rental yield?:
Yield = (Annual rent/Price of property) X 100%
E.g. if you've seen a property for £150,000 and the achievable rent is £800 a month which comes to £9,600 a year, then the rental yield would be:
(£9,600/£150,000) X 100% = 6.4% This falls short and potentially wouldn't be able to get 90% lending.
If the same property was able to command £850 a month which comes to £10,200 a year then the yield would be (£10,200/£150,000) X 100% = 6.8%, so then we would be able to get 90% lending.
If the rent falls short...
If the rent on the property falls short like in the first instance on the above example then you could get lending at 85% i.e. still be able to get a buy to let mortgage but you would need to put down 15% deposit.
At this level there are many options open to you even if the rent falls short. As long as the rent covers the mortgage then you will be able to get lending up to 85% of the property value.
The interest rate on buy to let mortgages is marginally higher than the rates on residential mortgages but still very favourable. The fact that more and more lenders are pouring into this market means that mortgage rates can only get more competitive which favours the borrower increasingly.
You have flexibility to remortgage just like residential mortgages from one buy to let lender to another if a better deal comes along. Just make sure though that you are out of any penalty period if you were tied in to your mortgage for a set period of time otherwise you may have to pay hefty penalties for exiting your mortgage early.
Lending options...
To cover every option open to you on a buy to let would be beyond the scope of this brief guide as there are so many things to think about e.g. the property type your purchasing - does it need work done to it or not?
This can affect the type of lending you go for, also the type of tenancy agreement you have whether it's for someone to occupy the whole property or whether you're renting it as rooms can make a difference as to which lenders to go for.
Also whether your property is a new build or not makes a difference with some lenders. Buy to let is a key area of expertise we have developed and can find the best deals on the market whether it's for properties where the rent doesn't stack up or whether it's for deals where you need to complete rapidly.
We cover the whole range as well as creative financing strategies! So fill in our enquiry form to get specific advice.
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