If you are shopping for a buy to let mortgage, you are not alone! Buy to Let Mortgages are widely popular in the UK housing market. Approximately 10% of all mortgages taken out in 2006 were to buy property to rent out. With a growing population, steady divorce rates, and a large population of students, there is constant demand for rentals. If you have done your research, buy to let mortgages can be a sound investment. There are specific mortgage types for buy to let mortgages, and if you are an investor you will want to have the knowledge on hand before discussing a quote with a lender.
The purpose of this article is to increase you knowledge about shopping for a buy to let mortgage. We will go over the basics of buy to let mortgages, deposit requirements, and where to find a buy to let mortgage lender.
Are there good deals to be found?
Yes. Because buy to let mortgages are increasingly common, lenders offer competitive mortgages specially designed for landlords.
Types of Buy to Let Mortgages
Historically, only type of buy to let mortgages required variable interest rates. Fluctuations in the market could raise or lower monthly payments. Most property owners appreciate knowing how much their mortgage payment is every month because it affects how much rent they should charge their tenants. Variable rate mortgages can provide a teaser interest rate initially and then depending upon the market, the interest rate can rise and fall. It is a gamble, but you might be able to pay less than a higher fixed rate. Luckily variable rates are in the past, and nowadays, you can find buy to let mortgages with fixed rates, flexible rates, and interest only payment plans.
If you are shopping for a buy to let mortgage, the interest rate and type of mortgage is instrumental in calculating the overall cost of your loan - check the overall APR (annual percentage rate of change) rather than the interest rate to get the fairest comparison. The difference between a fixed rate and variable one could be thousands of pounds, so do your homework and make a sound decision about which type is a better investment for you.
What is an Interest Only Mortgage?
An interest only mortgage can be paired with either fixed or variable rate just like a regular buy to let mortgage. You will simply pay off the interest owed to the lender and not the actual amount that you borrowed. Once the property is sold, the remaining capital will be repaid. If you are shopping for a buy to let mortgage, interest only mortgages allow for lower payments while the investor makes money off of the appreciation of the property. Just make sure you have a sound investment plan in place to guarantee that you will be able to pay off the money at the end of the mortgage term. Relying solely on your property to increase in value could lead to financial problems.
How Much Can I Borrow?
Buy to let mortgage basics will allow you to formulate how much you can borrow. Typically a property investor must have a down payment of approximately 25 per cent, so the bigger deposit you have increases the amount of money you can borrow. Lenders also usually insist that the rental price covers anywhere from 125% to 100 per cent of your buy to let mortgage payment. The reason why lenders take into account rental prices is to protect you and the lender when the property is not being rented out.
When you are shopping for a buy to let mortgage, it is important that you understand the legal responsibilities associated with being a landlord. Whether you are a professional landlord that owns several or even hundreds of properties, or an amateur, the basic principles are the same. It is your responsibility to know what is required of you and how your investment affects your taxes. Take all of these points into consideration when shopping for a buy to let property.
Where can I get a Buy to Let Mortgage?
Since there is a growing trend of buy to let mortgages in the UK, there are many mortgage brokers that can offer you a mortgage to fit your specific needs. Simply fill out our short buy to let mortgage form and we can connect you with a qualified lender from the SimplyFinance network who will be able to talk you through your options.