Focus: buy to let mortgages
Buy-to-let mortgages have become available in the United Kingdom in the late nineties. A buy-to-let mortgage is a mortgage used by landlords to borrow funds for buying a property with a view to let it out it to tenants. For regular mortgages, mortgage brokers figure out the amount a customer can borrow based on their annual income. It is not so for buy-to-let mortgages.
As a general rule interest rates offered for buy-to-let mortgages are relatively similar to owner-occupied mortgages, but are usually higher and with a higher arrangement fee. lenders believe that a buy-to-let investment carries a much higher risk than a owner-occupied mortgage. This risk is reflected in the higher rates on offer and fees.
House prices have hugely increased in the UK in the last 10 years. This has resulted in an explosion of the letting market as many families can’t afford the deposit required for a mortgage. This has made buy-to-let very popular with property investors.
Tax benefits is another reason for the success of buy-to-let. The income a landlord earns from the rent of a buy-to-let property is treated as salary (22%, 40% or 50% tax depending on the bands). There are however several costs investors can deduct from their tax bill: interest on mortgage repayments and maintenance costs for example.
Buy-to-let has been given a bad name in the last 5 years. Many say that buy-to-let is one of the key factors for the exploding house prices in the United Kingdom. A good example is London, where it has been estimated that more than 30% of the properties are bought with a view of renting them to tenants.
Does buy-to-let remain an interesting investment for property investors? It is hard to say. Every buy-to-let is different, and the rules for buy-to-let success has not changed. Landlords need to use a mortgage calculator to determine whether they can afford repayments, do some calculations to estimate costs and rent, and make sure that they invest in an area with a demand for rental properties.
It is also important to speak to a mortgage advisor that understands buy to let mortgages. The web has got plenty of resources and information such as buy to let information or buy-to-let guide for new landlords. Competition is very strong between lenders, so it’s also a good idea to compare the market and use your negotiation skills to get the best mortgage rates.
Raymond Colbert is a UK writer with 10 years experience in the mortgage industry. Raymond recommends that you speak to a local adviser, face to face, to progress your next buy-to-let investment. Sites such as Buy to let Mortgages can put you in touch with a local adviser at no cost to you.