What are buy to let mortgages and why are they so different from the normal residential mortgages and why do you need a much larger deposit. When Gordon Brown in his wisdom decided to rob the pension pot of its then gold star tax treatment, many Investors began to look elsewhere to invest on a long term basis.
For those looking for commercial finance on commercial property
The attraction for bricks and mortar must be in our blood some how, as we as a nation strive to own our own property above all else, unlike our neighbors in the EU. The buy to let mortgage seems to have been created because of a greedy chancellor who wanted to kill off our desire to invest in pension schemes as they were to tax efficient.
It's amazing how many people will look to buy a property as an Investment before they look to buy a house to live in. Have we created a new breed of entrepreneurs who will look at new ideas to create wealth in the long term to provide income in retirement, that the state cannot and will not provide, as the pension cupboard is bare.
So if we are looking for a buy to let mortgage what should we be aware of. Because of the commercial aspect of a buy to let mortgage you will be expected to find in most cases a 15% deposit. There are one or two exceptions to this but you should look at 15% to be on the safe side. It should also be borne in mind that buy to let mortgages are based on the rental income that the property should make, not your own. Again there is one exception, but Investors are far safer to make a decision based on the rental income received from the property. Each property should be looked at as a stand alone Investment, and the rental income should cover the monthly mortgage interest payments by a margin.
When lenders make their decision it's normally based on the assumption that the mortgage interest will be covered by a margin of 125%. This gives the lender a comfort zone together with the 15% deposit. Again there are always exceptions to this rule of thumb, but it would be wise to keep to these guidelines as interest rates can go up as well as down.
For the more serious Investor who wants to build up a number of properties, they have the opportunity to create a portfolio of properties with one lender. This will allow the lender to take an annual view of the total valuation, and in some cases, if property prices have risen by an acceptable margin, the increase in equity can be used to purchase other property to continue building up the portfolio.
Buy to let mortgages are certainly here to stay, and there are certainly hundreds of schemes to choose from. Clients would be wise to consult an Independent Financial Adviser, with access to the whole of the market and with many exclusive products that are not available to the general public. An IFA will research the market to find the most suitable product to suit you, and help guide you through the buying process.