Buy to Let mortgage. This is the term used for the mortgages that are used for property that is bought for investment purposes to let out. The buy to let mortgage industry has grown significantly over the last ten years as more and more people are opting for buy to let as a way of securing their financial futures. With this growth in the buy to let market, this has resulted in the buy to let mortgage products becoming more and more sophisticated and a much wider choice available to landlords for their investment properties.
A buy to let mortgage is different to a standard residential mortgage in that many buy to let mortgage lenders do not set their lending criteria based on an individuals’ income. Instead it is often done based on the rental income that can be achieved by the buy to let property. However, this is often determined on a percentage coverage which can range from just 100% up to 130% although some lenders can provide buy to let mortgages without a minimum rental income figure.
Buy to let mortgages have traditionally allowed borrowings of up to a maximum 85% loan to value of the buy to let property. This would mean that the property investor would have to fund the other 15% as a deposit against the buy to let property. However, there are now buy to let mortgage products available that can enable a property investor to borrow up to 90% of the value of the investment property requiring just a 10% deposit.
How much can I borrow?
The best buy to let mortgage products are available from a number of different sources. It’s important to know what you can borrow first and consider the different options available to you. With the buy to let mortgage industry as hungry for the business as each other it is worth monitoring the buy to let mortgage market on a regular basis as new mortgage products are being launched on an almost daily basis. Always find out the best buy to let mortgage deals available at the time. Some investors may decide to retain their entire buy to let investment property portfolio with one buy to let mortgage lender, but it is important to realize that different mortgage products between different mortgage lenders can provide you with maximum flexibility and cashlow depending on how you structure your buy to let funding.
What If I don’t have a Deposit?
Buy to let property investment is fairly straight forward if you do enough research in the first instance. If you are looking to invest in your first buy to let investment property but don’t have at least a 15% deposit, then you may find that you could release some equity from your own residential property.
Once you have established that you are in a good financial position to start on your first buy to let purchase, then you will need to know what options are available to you and to understand enough about them to be able to compare different buy to let mortgage products and buy to let rates.
Buy to Let Mortgage Types
Buy to Let Mortgages – Variable Rate
This is the lender's own mortgage rate and one that is subject to change whenever the lender chooses which is at the same time of base rate changes. This means that if you are on a lenders standard variable rate buy to let mortgage product then your monthly repayments will increase or decrease accordingly although they very rarely pass on the full percentage reduction to the client. This type of product does also allow the lender to change the rate even if there is no change in the Bank of England base rate. So if you are looking for something a bit more palatable why not look at your other options.
Buy to Let Mortgages – Discounted Rates
For a set period, the lender offers a reduction on its SVR (standard variable rate). Let’s say, it might offer a discount of 1.5 per cent over three years. However much the SVR (standard variable rate) increases or decreases during the discount period, you always pay a rate 1.5 per cent lower.
Buy to Let Mortgages – Stepped Discount Rate
Its also worth considering stepped discount buy to let mortgages, where the level of the discount reduces after a set period. For example, you may be offered a 1.5 per cent discount for a year, followed by a 0.75% per cent discount for the second year.
Buy to Let Mortgages – Fixed Rate
Regardless of the (SVR) standard variable or changes in the base rate, this kind of buy to let mortgage offers a fixed interest rate for a set period. The monthly mortgage repayments will remain the same giving the property investor the knowledge of what their monthly outgoings will be for a set term.
Buy to Let Mortgages – Capped Rate
The capped-rate buy to let mortgage offers a limit as to how high the interest rate can go. The rate you pay can move up and down below that level but never go beyond it. Your payments would reduce if there were any base rate decreases.
Buy to Let Mortgages – Drop Lock Rates
This is a feature that is included in some buy to let discounted mortgages. Initially you decide to opt for a discounted product but for a small fee you have the option to drop into one of that lender’s fixed rate products. At which time you would then be bound by the terms of the new fixed rate product.
Buy to Let Mortgages – Tracker Rates
Tracker buy to let mortgage products can be a good option for buy to let investors. Tracker products offer a margin over the base rate for certain periods of time. Some will offer a buy to let tracker product which tracks the base rate plus a margin for a few years whereas recently there are more products coming on the market where they will track the base rate for the life of the loan. Providing it is a low enough margin over the base rate and the base rate remains at a comfortable level, this can be particularly cost effective to a buy to let landlord as it can avoid the necessity for regular refinancing and the costs involved in the exercise.
