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Buy To Let - Understanding the BTL Market
Buy-to-let mortgages have become exceptionally popular during the last few years as more people look to boost their income while obtaining and securing assets.
BTL or buy-to-let mortgages are often an ideal solution for those who wish to raise their income and create some security for the future. However, you still need to make sure you read the small print and grasp everything about your mortgage deal before pushing ahead.
Who can obtain a BTL mortgage?
Anyone with a good credit history and enough money for the deposit can obtain a buy-to-let mortgage. It is advisable to speak to a mortgage broker, who is likely to have access to lenders and BTL mortgage products that would not be available to you if you went directly.
Below are some of the general criteria applicable to BTL Mortgages:
- Your rental yield must typically be at least 125% of your mortgage payment. So for example if you are paying a mortgage of £800 per month on the property, a lender would like to see the rental around £1,000 per month or above.
- In some cases, for higher rate tax-payers this would rise to 145% rental income or yield
- Some lenders would look for your personal income to be £25,000 or over. This is to cover any potential loss of rental income, they would hope you could afford to cover the mortgage repayments.
- You will usually need at least a 20% deposit. Larger deposits would get you a better rate.
- There are often minimum age requirements, some lenders requiring you to be at least 25 to be eligible for a loan.
- Some lenders will also want you to have held a residential mortgage, this is more so you know you have a history of understanding mortgage repayments and the process in general.
- Some buy-to-let mortgages are available to first-time landlords, but this is a more limited niche in the market.
In what circumstances would you use a BTL mortgage?
You will need a buy-to-let mortgage if you intend to purchase a property that you want to rent out– traditional residential mortgages are only for those who intend to live in the property they are buying. Mortgage lenders do not accept rented properties on a standard mortgage. This is because they believe there is greater risk involved with buy-to-let lending than with standard residential lending – i.e. a tenant not paying rent.
If you rent out your residential property on a residential mortgage it is seen as a breach of your mortgage contract.
Buy-to-let mortgages offer lower interest rates than standard solutions, and you often don’t have to pay the capital amount back until you sell. That is because the lender understands that you are not going to live in the house you purchase. They offer reduced interest rates so you can charge affordable rents to tenants and make a decent profit at the end of each year.
BTL mortgages are ideal for those who wish to make an investment that will grow over a lengthy period. Unless house prices rise dramatically, you aren’t going to make a fortune in under twelve months. You could see a healthy return if you choose to sell the property a decade down the line.
How do you arrange a buy-to-let mortgage?
It is possible to go directly to banks and high street lenders to arrange a BTL mortgage, however it is worth noting you will be limited to the limited product offered by each one, meaning to shop around is time consuming.
The best advice is to speak to a mortgage broker, who not only understands which lenders are specialists in Buy to Let Mortgages, but has access to the whole of the market and is there to represent your interests and not those of the lenders. They are privy to lenders and products that are not always available directly and can assess not just the rates, but also the fees and conditions that best suit your personal circumstances.
It’s also worth re-mentioning that due to their investment nature, most investors opt to take them on an interest only basis. That means all you have to pay each month is the amount of interest accumulated on the loan. In most situations, you will only pay the capital figure back when you sell the property.