Buy-To-Let Mortgages

Buy-to-let mortgages are specialised mortgages which enable you to buy a property with the intention of renting it out to someone else. The rent payments from your tenant can either supplement your income, or go towards repaying your mortgage and maintaining the property. In some cases, you will also make a profit if you decide to sell the property at a later date. Since you do not live in the property yourself, buy-to-let mortgages are sometimes referred to as 'investment mortgages'. These mortgages are available as repayment or interest-only plans and the interest rates can be fixed, variable or follow a special 'promotional rate' for a limited period.

As with standard mortgages, the amount you can borrow with a buy-to-let mortgage will vary depending on the lender and mortgage you choose. You are usually able to borrow up to eighty percent of the property's selling price. When you apply for a buy-to-let mortgage, the lender will carry out an affordability assessment, which gives them a reasonably accurate picture of your financial situation. Items such as your salary, bonuses, and commitments to other debts are taken into account. Since you expect to receive regular income from a tenant, you are often able to borrow more with a buy-to-let mortgage because your lender will assess this future income too. However, ensure you do not borrow more than you can currently afford: income from rent may not cover the cost of unexpected repairs to the property, and there may be periods of time when a tenant cannot be found to rent the property out.

Prior to the credit crunch, this type of mortgage was very popular in the UK because house prices were steadily increasing and property seemed a secure way to invest. The number of students and single parent families is also increasing, which means that rented accommodation is in demand. If you find an affordable property in a suitable area, a buy-to-let mortgage can still be a successful way of investing your money.

There are several things to consider when choosing a buy-to-let property. Firstly, try to ensure that the property is as 'neutral' as possible; the layout and style should be as appealing to potential tenants as possible: the more neutral the property is, the less likely they will be put off by quirky features or bold colours. Also, try and consider the location of the property and the type of tenants you would prefer; if you wish to attract families, it may be easier if the house is relatively close to a school. Local amenities and transport links can increase the price of the property, but can also make it easier to find suitable tenants.

Although buying a house is considered less risky than some other investment options, such as stocks and shares, there is no guarantee that the value of the property will have risen when you come to sell it. You may also be liable for large capital gains tax charges because you are selling a second home. You should also consider whether or not you would be able to afford mortgage repayments when the property is not leased if you rely on tenants' rental payments to fund these repayments. Some advisers suggest that you can expect the property to be empty for two out of every twelve months. There are many risks to consider before making a decision: like any investment, you could lose out financially. A financial advisor will be able to suggest other investment options if you are unsure whether a buy-to-let mortgage is best for you.