Voices in Finance » buy to let mortgage

Buy to Let Mortgages – Best Buys

Mike — Wed, 18 Nov 2009 11:26:29 +0000

If you are looking at buy to let mortgages, best buys can be hard to find. But this article will help you find your way through what can be a bit of a minefield.

History and Overview

in 2008 and 2009, the global economy has taken something of a nosedive. Whereas just a few years ago, many investors were taking out buy to let mortgages to buy rental properties, that is something that is now happenign a lot less.

The reason for this is that many of those rental properties are now worth significantly less than they were. Mortgage lenders have been forced to foreclose on many of these loans and as a result, they are now becoming much more stringent in their offers.

What kind of deals are currently available?

Mortgage lenders are offering a lot less than they were. In some countries (such as the UK), only 5% of the deals that were available in late 2007 were still available in mid 2009. Borrowing is more difficult, with lenders requiring not only larger deposits, but also charging higher interest rates even though bank base rates have decreased.

But there are still deals to be had. You just need to be able to show the lender that you are offering them a sound inves
Photo by Dominic’s picstment. If you can prove that the property will have a decent rental income, than you should be able to borrow up to three times your annual salary plus 50% of the annual rental profits.

What types of mortgages are offered?

These are some of the types of mortgage that you might be able to get on a buy-to-let deal:

Fixed rate
Variable rate
Discount rate for early repayment
Cashback mortgage
Interest only mortgage

Other Points to Consider

Treat your rental property as a business, and your mortgage application as if you were a businessman seeking an investor. In effect, this is what you are doing. When seeking out buy to let mortgages, best buys can be found when you offer the mortgage lender a low-risk, high-return proposal.

Fixed Rate Buy to Let Mortgages

Mike — Wed, 18 Nov 2009 11:07:47 +0000

First of all, let’s just explain exactly what a fixed rate buy to let mortgage actually is.

This type of mortgage is one where you would borrow money from a mortgage lender, at an interest rate fixed for a certain period (usually somewhere between three and five years), to pay for a property that you intend to rent out.

So what you are doing is borrowing money to pay for an investment. An investment that will hopefully not only grow in value over time, but also provide you with a regular monthly income in the form of rental payments from your tenants.

What happens at the end of the fixed rate period?

Photo by tim caynesUsually, when the fixed rate period comes to an end, the mortgage lender will either offer you the choice of going on to a standard variable rate (probably a couple of points over the prevailing bank base rate) or a new fixed rate for another three to five years.

Who can apply for one of these mortgages?

A number of factors are taken into consideration by mortgage lenders when evaluating applications. Here are some of the things they are likely to want to know:

Is the property going to be used purely for rental purposes?
Is the property in good condition?
Will it be sub-let?
Do you have loans against other buy to let properties?
Are you currently over 18 and will you be under 75 when the loan matures?

Advantages of Fixed Rate Buy-to-Let Mortgages

The main advantage of a fixed rate buy to let mortgage, rather than a variable rate mortgage, is the stability and predictability of outgoings, which makes the whole process of budgeting easier. If interest rates suddenly go up, you don’t have to worry because your rate is fixed. Of course, the flip side of this is that you won’t see realise the advantages of a drop in interest rates either.

Buy to Let Mortgages – Interest Only

Mike — Wed, 18 Nov 2009 10:50:07 +0000

As the workplace has evolved and more and more people in the workforce have become more mobile, there has been a massive growth in the requirement for rental properties and short-term leases. As as direct result of this, many investors have moved into the rental property market by taking out buy to let mortgages. Interest only deals have provided these new landlords a way of paying less per month than traditional capital repayment mortgages.

There are other benefits too:

As a long term investment, rental properties can provide a significant return
The monthly rent from tenants gives a solid, recurring income
If your current portfolio consists of other types of investment, owning one or more rental properties will help you to diversify

An Investment for the Long Term

Photo by rmcgerveyOwning a rental property should not be viewed as a short-term investment. But by taking out an interest-only loan to purchase the property, the amount you need to pay to the lender each month is lowered, so the amount you need to make on rent is lower too. You can use the extra income from the rent to either re-invest or to pay back part of the loan’s principal. Of course, once the loan is repaid, you then have a property that is giving you a continued monthly income.

Diversifying Your Portfolio

Common sense dictates that it is never a good idea to put all your investment eggs into one basket. Versatility and diversification are the key to having a strong investment portfolio. And any investment that not only grows in value but generates its own monthly recurring income has to be a strong performer in the portfolio. A well-chosen rental property will satisfy both of these criteria.

Conclusion

When buying a property for rental, it is always worth considering the benefits of buy-to-let mortgages. Interest only mortgages provide the added advantage of requiring lower monthly payments. Be aware however that you can lose money on these deals if a) interest rates rise and remain high; b) the value of your property decreases or c) you cannot make enough money from rental income to cover the payments.