Buy to Let Mortgages - Get More From Property Finance

Back in 1999, when the concept of investing in residential property was still young, there were 73,200 buy to let mortgages outstanding in the UK, according to data from the Council of Mortgage Lenders. Compare this to the staggering 991,600 buy to let mortgages on the CML’s books in quarter three of 2007 and it’s self-explanatory how popular investing in property has become.

But, despite the fairly common nature of buy to let mortgages today, these are not loans to be taken lightly. Usually, the investor has their own residential mortgage to maintain – as well as ensuring that there are tenants in the buy to let home to fund the second mortgage. That’s why, when looking at buy to let mortgages, the first step has to be seeking advice from a specialist in the area, such as The Mortgage Broker Limited.

How do buy to let mortgages work?
Buy to let mortgages work differently to residential deals – each of the differences hinging on the fact they are perceived as more risky by the lender, as the borrower does not live in the property and it is not ‘their home’ that is at risk if repayments are not met.

For example, buy to let mortgages typically require a larger deposit than a residential loan – between 15 and 20 per cent of the property value, opposed to five per cent. The best interest rates payable on buy to let mortgages also tends to be higher than that you would find on the best residential deals though due to market competition, this margin is narrowing. Buy to let mortgages also tend to be taken on an interest-only basis, rather than repayment which is more suitable for your own residential home.

How much will buy to let mortgages allow you to borrow?
The amount buy to let mortgages will lend to a property investor primarily rests on a calculation called ‘rent to interest’. This states that the rent gathered from the property must equate to between 125 and 150 per cent of the mortgage interest repayments each month. So, if an investor can raise £1,000 in rent on a property, the interest repayments on a loan to buy it can not be more than between £667 and £800 a month, depending on the lender and the borrower’s own circumstances. However, with the right mortgage broker helping you to navigate buy to let mortgages, this rent to interest calculation does not have to be set in stone.

What lenders offer buy to let mortgages?
Traditionally, buy to let mortgages were only offered by niche, specialist lenders and available through intermediaries. But since property investment took off at the end of the last decade, many high street lenders started offering buy to let mortgages. But, many of the best deals in the albeit growing arena of buy to let mortgages, are still only accessed through specialist brokers like TMBL, that have a broad knowledge of the market as well as existing relationships with lenders.

Why would I be interested in buy to let mortgages?
The past 10 years has proved that buy to let mortgages, if used in the right way, can be a passport to a solid and fruitful investment for your future. During this time, the price of an average property has risen a very handsome 179 per cent – from £70,000 at the end to 1997 to £195,000 today, according to Halifax. But, the onset of the credit crunch has meant that buy to let mortgages have come under some scrutiny – which is further reason to ensure you seek all the right help, advice and guidance from the start.