Sterling Effort

Buy-to-let Mortgages

December 29, 2012 by Jay in Investing with 3 Comments

Buy-to-let mortgages are designed for landlords to borrow money so that they can buy a property and rent it out. These are like a regular mortgage but the lender considers the rental income when deciding on how much money to lend. These mortgages differ from standard mortgages because the lender weighs up your income and a percentage of the income you are expected to get from renting out the property.

Here are some pointers to help further describe buy-to-let mortgages:

  • Buy-to-let mortgages are usually interest only, so repayments won’t repay the loan taken out, purely the interest. At the end of the term of the mortgage, the cash made from the property’s sale is what covers the outstanding money.
  • There are many deals to choose from for your buy-to-let mortgage, such as tracker, fixed and discounted. The arrangement fee for this type of mortgage will be around 1.5 to 2%.
  • You need to consider if you have the deposit for this mortgage as this will be higher than a normal mortgage. Basically, there is a higher risk involved, so lenders are more cautious about a higher rate of lending. If you do have the deposit needed, and you’ve done your sums properly, you are ready to go ahead with one of these mortgages and there’s a wide range to choose from.
  • Remember to consider the rental market before you act. Rather than choose a property that you like (which is what you do when you apply for a standard mortgage for a home), you have to think about buying a property that is in a popular location and is one that tenants are going to want to rent.
  • Location is very important, there’s no denying it. You can find out about the best areas to look in by researching the rental market in that area so you know what the best plan of action is.
  • Many landlords offer properties in locations close to universities, for student rentals, or hospitals. Cities are generally good for this type of mortgage as there are many more young people trying to rent rooms in houses or whole houses or flats. The rental market in cities tends to remain buoyant, as opposed to rural areas which may be more difficult to attract tenants to, on an ongoing basis.
  • Disadvantages of buy-to-let mortgages are the tax you will pay on the property when you sell it as well as agent fees (which can be 15-20% of the rental income). You also need to maintain the property, so avoid buying a run down house which will incur costs.
  • If you do not wish to use an agent, you have to consider all the things you will need to organise, such as viewings, adverts, money collection and maintenance.
  • Many lenders provide buy-to-let mortgages, and you can shop around online for the best mortgage interest rate you can get. Collect quotes from lenders and to ensure you get a competitive rate.
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3 Comments

  1. Finance InspiredJanuary 4, 2013 at 1:46 pmReply

    Very useful article. I’m considering buying to let in the near future and its definitely opened my eyes.

  2. John@MoneyPrincipleJanuary 11, 2013 at 10:25 amReply

    The golden rule is surely buy to sell. Whether it is for yourself or for letting out, consider how easily you could sell the property. This does mean that the twee cottage near a crumbling cliff edge will not be suitable but it isn’t anyway, even if there is room for the pony.

    Beware of student properties. Firstly many universities have been building good accomodation as an extra income stream themselves, including internet and all facilities. Secondly with the governments double whammy of tuition fees and immigration policy, student numbers are bound to fall. Private landlords are already finding this.

  3. WILDaboutFinanceJanuary 25, 2013 at 3:38 pmReply

    Hey Jay how come the posts have tailed off? I’ve been reading for the best part of a year now, infact you were one of a few bloggers who inspired me to start a blog of my own!

    You lost interest?

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