Buy to Let Mortgages

What is a buy to let mortgage?

A buy to let mortgage is a mortgage loan on a property which you intend to let out. The idea is that the rental income you realise from your buy to let property will make a significant contribution to the mortgage payments. You stand to benefit from building up equity in your buy to let property, taking advantage of any rise in property prices while minimising your payments by setting the rental income against them.

There are however pitfalls, some which can cost you money and some which will cost time and hassle. As with any property purchase, the value of the bricks and mortar you buy may go down instead of up leaving you with a loan for more than the property is worth. You may find that it is not easy to find tenants, or that the tenants you find are not as reliable as you would like. It may also happen that you are required to spend significant time on property maintenance and decoration.

Buy to let acceptance criteria

The factors which different lenders will take into account vary but usually the buy to let lender will look at the likely rental income rather than the applicants income. As a guide, rental income will likely be a minimum of 125% - 130% of the mortgage repayment with an annual yield in the region of 8%. Lenders will also look for the applicant to own their primary property and be able to put down a significant deposit on the buy to let property of at least 15% and sometimes 25%.

The costs of buy to let

Although your tenant will be responsible for their own council tax, utility bills and television license, you should remember to factor several costs into your calculations of whether buy to let can work for you. These include the costs of getting the propery into a marketable condition, and keeping it that way. You will be required to maintain adequate building insurance on the property as well as contents, rental and legal expenses cover. Depending on your choice of property you may be liable to building service charges or ground rents. If you retain the services of a letting agent, then you will likely pay a commission on the monthly rental income to them for their marketing and maintenance services.