Advantages & Disadvantages of Buy To Let Mortgages
Buy to let mortgages are available for mortgages between 5 and 45 year terms. Generally 85% Loan To Value (LTV) is available although 90% or 95% can sometimes be found.
Unlike the traditional mortgages where the amount borrowed is based on your year annual salary a buy to let is based on the rental income you will get from the property.
Some lenders will expect landlords to use letting agents to manage the property and have Assured Short Hold Tenancies drawn up, although this isn’t always the case.
Returns on the rent received before taking into account costs such as management fees maintenance, service charges, ground rent and insurance can vary from 5% to 10%.
Generally your gross rents should be between 130% to 150% of your monthly mortgage payments. Higher returns can me made from renting ndividual rooms within a unit. Hgher returns are sometimes got from cheaper properties.
To keep the monthly ayments low mst people choosing buy to let mortgage or remortgage choose an interest only option. This keeps the monthly mortgage payments low and the landlord benefits from property price increas$es when selling on the property.
| Advantages | Disadvantages |
| allows the lender to look at your potential rental income when deciding how much to lend rather than your personal income. | Usually a deposit of 25% required. Sometimes 20% or 15% deposit buy to lets can be sourced. |
| Allows you to rent a property for income as normal mortgages prohibit renting. | Interest rates slightly higher than residential mortgages, but due to competition between lenders still very attractive. |
Who are Buy to Let mortgages most suitable for ?
- Anybody who wants to buy a property to rent out.
- People who may want to purchase a property such as a house or flat for long term investment due to increase in property prices.
- People looking to build a large portfolio of properties or use property investing as a full time income.
- Property developers.
When is the best time for a Buy To Let Mortgage ?
- Local authorities tend to be moving away from council houses and moving toward housing associations. This trend sets the rental market for big growth within the foreseeable future.
- Due to the massive surge in house prices many cannot afford to get on the property ladder at all and are forced to rent. Another factor that favors property renting to make profit.
What to watch for ?
- Make sure you choose a property in the right location. The difference here could mean the difference between an empty house creating a burden and a full house paying off the mortgage for you.
- Early redemption charges.
- Ensure you can afford the mortgage payment for a set time even if the house is empty with no income.
- Get the right kind of insurance and seek expert advice on letting from a letting agency.
