Buy-to-let mortgages allow a borrower to obtain a mortgage on a property that will be later let out by the borrower to a tenant. In essence, a lender provides the mortgage to a borrower so that he or she can buy a residential property and let it out to a tenant. The concept of buy-to-let mortgages has gained popularity over the years because of the rising costs of residential properties and also because people are considering it as a new business option.
There are many issues to be aware of, when one is planning to go in for a buy-to-let initiative. The first is that the mortgage is provided on the merit of the investment and not on the repaying capacity of the borrower. Unlike other mortgages, lenders assess the value of the property that is to be bought more, rather than the borrower’s current income. Since the property that is to be bought will be used to repay the loan, the rental value of the new property will be assessed by the lender considerably.
Another important fact to consider is how much the mortgage company is ready to provide for the property. It is important to consider the level of rental income that one expects to receive compared to the cost of the mortgage per month. Lenders will usually expect the rental income from a property to be at least 130% more than the mortgage cost. Only such a rental value will allow a customer to take care of other costs such as rental management charges and so on. For example, if one has a property that generates GBP800 per month, a mortgage that would extract a cost of GBP615 per month will only be provided by lenders. However, modern day lenders may also be ready to provide as little as 100% interest cover, which in effect could mean that the forecast rent could be the same as one’s mortgage cost. However, if one is not able to find a tenant for some time, one will run highs costs of managing the mortgages.
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