Buy to Let Mortgages

The Credit Crunch has had an effect on this market with lending criteria being tightened.  Larger deposits are required, higher coverage in terms of rentals and it is inevitable that lenders valuers property valuations are likely to be cautious view.   There are lenders who are still active and with a good deposit (likely to be at least 25%) and good rental coverage there are opportunities for landlords who take an optimistic view of the long term residential market.

Buy to let mortgages have different characteristics than normal mortgages used when buying a principle place of residence.

Rental Income
A major part of the criteria for any lender in a Buy to let application will be the potential rental income. Dependent on the value, deposit and rental income your earned income may not always enter the equation.

Interest Rate
Buy to Let mortgages are usually subject to higher interest rates.

Size of Deposit.
A deposit of 20% or 25% of the property's value is a typical requirement

Being a private landlord can be riskier and more complicated than it first appears. It may require a great deal of your personal time when compared to other investments and should house price inflation tail off, or worse go into reverse then the attraction of a Buy to let mortgage investment certainly wanes.

However, a second property to let to good tenants and financed on the correct terms could prove to be an excellent long term investment.

Decide your priorities before you start looking. Is it Income or long term capital growth. You must be clear in your objectives as it will have a serious impact on the type of property you require as well as its location.

There are expenses involved in addition to the mortgage repayments. You should be aim to achieve a rental level between 130 - 140% of the interest only mortgage repayments.

Your costs may include the following and is not a comprehensive list:

• Maintenance costs.
• Agent's fees -
• Leasehold - Ground rent and or service charges
• Legal insurance - To cover costs if anything does go wrong.
• Insurance - both Building and contents.
• Furnishings -
• Appliances and servicing of items like Gas Boilers
• Health and Safety -compliance with Fire regulations, Gas fittings and
  electrical wiring.

You must get advice on the tax position to be clear what expenses you
can defer against the rental income.

Useful links include:

The Association of Residential Letting Agents (ARLA) at:
http://www.arla.co.uk/

The Direct Gov web site at:
http://www.direct.gov.uk/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRen
talIncome/TaxOnRentalIncomeArticles/fs/en?content_id=4017814&chk=fR%2BHB2

The HMRC Guidelines on Non resident landlords
http://www.hmrc.gov.uk/cnr/nr_landlords.htm

This Guide and Fact sheet from the FSA will point out the basic facts as well as the advantages and disadvantages of Buy to Let mortgages.

• How much can you borrow?
• What type of mortgage can you have?
• Some risks of buy-to-let and what you can do about it.

Please download the file here.

The fact sheet is in PDF format and you will need the FREE PDF reader from Adobe to open it. You can obtain the Free reader by clicking on the image below.