As property investment has become hugely popular, buy to let mortgages are have also become much more prominent in the marketplace. Because first time buyers are increasingly struggling to get onto the property ladder they are being forced to rent, meaning landlords have the prospect of becoming high earning buy to let investors – if they take out the correct buy to let mortgage.
Buy to Let Mortgages Explained
A buy to let mortgage can be taken out by experienced property investors or first time landlords to help them purchase a property to rent out. They work similarly to standard mortgages for home buyers, though any potential rental income is taken into account by lenders when deciding the loan amount which can be borrowed. As these mortgage types are intended for those in business, a landlord’s own income is also considered in addition to any income from rent they may earn. The percentage banks or building societies are likely to lend is usually restricted to 80% of the value of a property, and a buy to let mortgage term can be anything from 5 to 45 years.
Buy to let mortgages tend to be interest only mortgages rather than repayment mortgages, meaning that over the term of the mortgage only interest on the loan amount is paid back (in addition to the usual mortgage fees). Buy to let mortgage rates vary depending on the preferences of the landlord, though most choose a mortgage on a fixed, variable, or tracker rate.
Advantages of Buy to Let Mortgages
Whatever the buy to let mortgage rate, once the mortgage term has ended, the initial loan amount will remain outstanding, and will more often than not be paid back through the sale of a property.
One of the main benefits of a buy to let mortgage is that it can be a means of offering good income potential, particularly in times of high property prices in which people are more likely to rent. The best buy to let mortgages are considered those which provide the potential for capital appreciation should the property increase in value.
Disadvantages of Buy to Let Mortgages
However, taking out a mortgage on a property in order to later rent it out brings with it a range of responsibilities. Monthly interest rates and initial deposits are likely to be slightly higher with buy to let mortgages than with residential mortgages. A buy to let property also needs to generate enough rental income to cover a landlord’s mortgage interest payments, which will have to be demonstrated to a lender before they consider offering a mortgage deal.
Buy to Let Mortgage Calculators
As property is a long term investment, a buy to let mortgage calculator should be used to decide if such a buy to let mortgage is a suitable option for a rental business. Though they should only be used as a guide, buy to let mortgage calculators are able to work out the required rental income needed from a property, and how much money any borrower is likely to be able to obtain from a lender. Though they are not the cheapest of mortgages, specialist websites can be used to compare buy to let mortgages to find the best deals.