Buy to Let Mortgage: Points to Ponder

You may have decided that you want to get into the business of property letting. If you do, it’s unlikely that you will be able to buy the property outright. So your first step is to look for a buy to let mortgage.

A UK buy to let mortgage is not difficult to obtain, especially nowadays. An increasing number of lenders are getting into the business. But there are some things you need to be aware of.

• First and foremost – NEVER be tempted to conceal from a prospective lender that you plan to let out the property as a business. Most “ordinary” residential mortgages have clauses that preclude letting out for profit. So if you do this you could find yourself in serious trouble.
• When you apply for a buy-to-let mortgage, you are likely to find that the lender is not only looking at your own income, or at the valuation of the property, when deciding how much to lend. They will also want to consider the potential rental income. If you want to estimate this, the best way is to pose as a prospective tenant and make enquiries about similar rental properties in the neighbourhood.
• Many buy-to-let mortgage lenders require that the likely monthly rental income should be at least 125% of the monthly mortgage payment. Some require that it should be at least 150%.
• Usually you will find that you need a larger deposit for a buy-to-let mortgage than for an ordinary standard mortgage. It can often be 15% or even 25%. If you have equity in your existing home, using this may be the easiest way of getting hold of the deposit. You might be able to negotiate a smaller deposit, but remember that the bigger the deposit you pay, the better terms you will get on your loan.
• Repayments on a buy to let mortgage don’t qualify for tax relief. But they CAN be set against the tax on your rental income. So can agents’ fees, if you employ an agent, and the upkeep and maintenance costs of the property.

If you find all this confusing, your best plan would be to find an independent mortgage broker who specialises in buy to let mortgages. A broker would be able to guide you through the process, explain all the ins-and-outs, and find the lender most suitable for your needs.

Sean Horton is a Director of a buy to let mortgage broker who offer specialist advice for buy to let mortgages