Buy to let mortgages
The huge growth in house prices over recent history has subsided. House prices continue to increase at a steady rate and can still out perform many other forms of pension provision. With this in mind, many people are looking towards a Buy to Let mortgage as an investment opportunity. What are the advantages of buy to let mortgage The first big hurdle and the most important, to overcome, is finding the right property, in the right area with the right letting potential.
Then finance is required to purchase the property. The best thing is to have cash, but not too many people are in a position to pay up front for the purchase. In any case, paying cash is probably not the best way of going about it. There are tax benefits available as mortgage interest can be offset against the rental income, which can reduce tax bills. Therefore, it would make sense to borrow at least some of the money. There has been a lot of movement in Buy to Let mortgages providers and many more mortgages are available for prospective purchasers. However, it is required to provide a deposit, which is likely to be much higher than the deposit on the mortgage for the main residence.
The more deposit one can find, the lower the interest rate on the mortgage is likely to be. The higher the risk for the mortgage lender the higher the interest rate! It is now possible to find Buy to Let mortgages which only require a deposit of around 10% whereas in the past, lenders required deposits upwards of 20%. Many lenders now offer very competitive deals with interest rates only slightly higher than the mortgage on a main residence. One can find on offer a range of Buy to Let mortgages, which include fixed rate, discounted and tracker loans. These can all come with more flexible features too. Contrary to the current advice for main residence mortgages, many who opt for a Buy to Let mortgages tend to choose interest only repayments.
The monthly payments are cheaper. They can be offset against rental income and can be paid off by selling the property. As this is not the main residence, there is no requirement to pay off outstanding mortgages at the end of the term because one needs to live there the property is therefore disposable. Always talk to an Independent Financial Advisor before taking on a Buy to Let mortgages. It is now easy to find Mortgage Advisors who specialize in this field and will help to find the right deal. Mortgage lenders will be more interested in the potential rental income of the property rather than ones ability to pay based on salary. They will be concerned to see that the rental income covers the mortgage repayments.
Usually lender will require around 130% rental income compared to the mortgage repayment. So for example, if the mortgage repayments are 500 per month, the rental income will need to be 650 per month. This is to make sure that the mortgage can be paid with some left over to cover maintenance costs and should the property be empty for a period of time. Some lenders have now reduced their lending criteria from 130% to as low as 110% or even 100% of the rental income. Be aware that these lower figures will probably mean higher interest rates and greater repayment figures for the borrower squeezing the cushion between income from letting and the repayment figure.
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