With increasing demand for rental properties and the current low rates, Buy to Let mortgages are proving an attractive investment for those able to raise a large deposit, particularly when compared to low savings rates and stock market volatility.
If you are interested in investing in a Buy to Let property, then it is important to do your research to ensure that it is the right kind of investment for you. You could even consider talking to someone who has invested in Buy To Let to gain further insight.Who can get a Buy to Let mortgage?
In order to obtain a Buy to Let Mortgage, you will have to meet a number of criteria. You should already own our own home, either outright or with an outstanding mortgage, and have a good credit rating. You may also find it harder to secure a Buy to Let mortgage if you are earning less than £25,000 a year. Lenders will also consider how old you will be when the mortgage ends, and usually have an upper age limit, between 70 and 75 years.What’s different to a normal mortgage?
Buy to Let mortgages typically have higher interest rates than a usual mortgage and also require a larger deposit of between 20% and 40%. They also have higher fees and most are interest only, meaning that you will have to repay the capital at the end of the mortgage term. It is important not to rely entirely on selling the property for repayment as house prices may fall.
Buy to Let mortgages are not regulated by the Financial Conduct Authority, but it would be wise to go with a FCA authorised lender, as they are expected to treat you fairly as part of their authorisation.How much can I borrow?
The maximum amount you can borrow for a Buy to Let mortgage will depend on the amount of rental income you can expect to obtain from the property. Typically, the rental income will need to be 25-30% higher than the mortgage repayments. Again, this is where your research will come in handy; talk to letting agents in the area or check the listings in a local newspaper to get an idea of the rental income you may able to obtain.What to watch out for
You shouldn’t assume you will have tenants all of the time. It is important to have some funds put aside for any time that you don’t have tenants as well as savings for any major repairs. Also, as house prices can fall, you shouldn’t rely on selling the property to make the repayment on the mortgage. If when you sell the property, you make a profit that exceeds the Capital Gains tax threshold, then you will have to pay Capital Gains Tax. Similarly, if your rental income exceeds your mortgage payments plus allowable expenses, you may become liable for Income Tax on it.