Buy to Let Mortgages (Buy-2-Let)

Buy to Let Mortgages have seen a surge of interest from the UK population. Many long term home owners have experienced the shock of dwindling pension funds and poorly performing investment opportunities. Whilst in the mean time, the housing market has been booming right under their noses. Well as an act of natural progression, many long term home owners and those who have benefited by attaining large sums of equity, have taken the Buy-to-Let offering under their wings, (who can blame them).

The Evolution of Buy-to-Let Mortgages

Buy-to-let mortgages came about after new legislation within the “Housing Act” giving landlords more power to evict tenants who were not keeping up with their rent. In September 1996, the Association of Residential Letting Agents (ARLA) launched these loans via a panel of lenders, and hence the buy-to-let mortgage arrived in the UK property marketplace. There are now around 70 buy-to-let mortgage lenders in the UK.

Buy-to-Let Mortgage Tips

If it is your intention to purchase a property to let out to tenants, it’s important to that your made aware of the pitfalls.

So why are you buying the property? Your main objective might be to generate an additional income, (month to month profits from the tenants) or you may also be set on seeing a capital growth, (profit through increased equity as the value increases over time - “riding the market”). The purpose for the purchase does influence the type and location of the property that you finally purchase i.e., do you buy in a non developing area or one that is set to boom (new offices or shopping complexes etc).

Prior to applying for a “Buy-to-Let Mortgage Loan”, think about how you would like to let (rent out) your property. The property can be let in various stages of furnishing, (unfurnished, part furnished, furnished), as we are all aware furnishings cost money and you will have to deal with any damage caused by the residents while you are letting the property, this can often be an unnecessary headache that you could do without. If you do decide to furnish the property; factor the associated costs into the rent.

Maintaining any property is often an expensive process. As a guide you should be aiming to achieve a gross rent of at 135% of the property’s interest only mortgage repayments. This will provide a cushion that will help you cover your costs should anything go wrong with the property (within reason).

We strongly advise all want-to-be landlords, to research the Buy-to-Let Mortgage Market before committing to a specific Buy-to-Let Mortgage. For many people, fixed rate interest options are preferable.

Repayments for Buy-to-Let properties can frequently be done in interest only repayments, but if you wish to repay the entire value of a property then look for a mortgage that will allow you to overpay each month.

Finding a mortgage loan where the interest is calculated daily instead of annually provides greater clarity (interest will be calculated on a current balance instead of on repayments that have already been made throughout the course of the year).

Three major points when researching a Buy-to-Let Mortgage:-

Buy-to-Let Rent Potential - The decision as to whether or not a mortgage is offered to you, is most often based on the rent you will earn in addition to your income. NB: Quite often your income might not even be considered.

  • Buy-to-Let Interest Rate - Buy to let mortgages often have a slightly higher interest rate.

  • Buy-to-Let Deposit - The deposit is typically a minimum of 20% - 25% of the property’s current market value.

  • Buying a property to let can be an exciting experience but we urge you not to get carried away without researching the entire market.

Alternatives to Buy-to-Let Property Investment

There are a few other options you could also look into:-

  • Self Build - Buying a house that is already built and in liveable condition is often more expensive than purchasing some suitable land and building a new fresh property.

  • Property Development - Most Buy-to-Let investors are simply seeking a return on investment, and some possess the knowledge to enter the property development arena.

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