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Mortgages For Investment Properties

As buy-to-let becomes more and more popular, many mortgage providers are now offering the choice of a buy-to-let property mortgage. With a buy-to-let property mortgage, you put down a deposit on a house or flat and get a mortgage to fund the difference. The rent you charge should cover your mortgage payments, as well as interest payments and other fees. Generally, your rent should be about 130% of your mortgage payments.

Why a buy-to-let property mortgage?

An investment property mortgage is a good method of investment property finance, and allows you to buy property even though you may not have all the capital. Buy-to-let property has become more popular because low interest rates have made mortgages more affordable, and rental income is often more attractive than other investments.

Association of Residential Letting Agents

The Association of Residential Letting Agents, (ARLA), operates a buy-to-let property mortgage scheme with the support of a group of lenders. This is one of the most common ways to get your buy-to-let property mortgage. However, there are other providers who will offer a buy-to-let property mortgage, and so you do not necessarily need to use an ARLA agent.

What is different about a buy-to-let property mortgage?

The main difference between a normal mortgage and a buy-to-let mortgage is that the lender can take into account the amount of rent you will earn as well as your job income. Some lenders only focus on the rent when you are applying for the buy-to-let property mortgage, whereas others take your salary into account as well. However, any outstanding mortgage you have on your own home will reduce the amount you can borrow for a buy-to-let property mortgage.

Terms of buy-to-let property mortgages

How much you can borrow obviously depends on the lender, but the maximum ranges from £150,000 to £1m per property, with the maximum being about 85% of the property price. This means you will need at least 15% of the property value as a deposit. However, the better deals are had if you can put down around 20 or 25% of the price. Although this may seem a lot, it will benefit. This means you need a deposit of at least 15%. Deals become more competitive if you can put down 20% or 25%.

How the lenders calculate what they will lend generally differs, although usually they look at how much you can earn from the property from rent, and also your income. For example, they might lend you half the rent and three times your salary. However, it really does depend on your financial situation and the profitability of your rental property.

Mortgage costs

Buy-to-let mortgages are a good method of investment property finance, but are generally more expensive than normal mortgages. However, the rates are slowly coming down as more and more providers enter the market. Fees on a buy-to-let property mortgage are about the same as traditional mortgages and range from around £150 to £500.

Tax breaks

There is no direct tax relief on buy-to-let mortgages, but you can offset interest payments on your mortgage against tax on rental income. One key thing to remember is that a buy-to-let property mortgage is not subject to the rules and regulations of the Financial Services Authority. This means buy-to-let lenders have more flexibility on how they sell, promote and advertise their deals, and so you need to be extremely careful that you get exactly what you want.

Types of buy-to-let property mortgage

An investment property mortgage has very similar options to a traditional mortgage, with the most common forms of buy-to-let property mortgage being fixed rate and capped rate mortgages. A fixed rate mortgage does exactly what it says, and has a fixed interest rate for a set amount of time, usually up to the first five years. This type of buy-to-let property mortgage is good for those who need to know exactly what they will pay each month. However, these mortgages are only a good idea if interest rates are likely to rise, because a fall in interest rates would mean you are paying more than you need to.

Capped rate buy-to-let mortgages have a ceiling on the interest rate you will pay, which means they cannot rise above a certain level. These mortgages are good if you if you want to make sure your payments only rise to a certain level, and also allow you to take advantage of reductions in interest rates. However, capped rate mortgages are usually set at a higher rate than fixed rate mortgages, and you also have to commit to a certain number of years on that mortgage.

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