Low returns on savings accounts make a buy-to-let property as an investment a more attractive option. Landlords in many parts of the country are also enjoying increasing demand from tenants, who are struggling to afford a deposit on their first home. Competitive mortgage rates also come into the equation.
If you are thinking of buying a property to let, the mortgage is one of the most important considerations. You cannot take out a standard residential loan, but many banks and building societies offer buy-to-let mortgages, specifically for landlords.
A buy-to-let mortgage is similar in many ways to a standard home loan. However, there are some important differences. The interest rate is usually higher. A larger deposit on a buy-to-let property is needed - a minimum of 25% is the norm, although many of the best deals demand 40% or more.
Buy to let mortgage rates vary and are dependent on the risk of the mortgage to the lender as well as the deposit available for an individual to put down. Buy to let mortgages are often greater than residential rates.
With a buy-to-let loan Banks & Building Societies look at the expected rental income - and most lenders insist that the annual rental income must at least equal 125% of the annual mortgage interest payments. The strict conditions reflect the greater risk of buy-to-let loans, as the statistics show that borrowers are more likely to default on a buy-to-let than a residential mortgage.
The required rental income buffer on top of the mortgage interest due is also there to allow for a period of vacancy between tenants.
Most banks and building societies insist on a minimum age, often 25, plus a minimum income, usually around £25,000. You are not normally allowed to take out more than three buy-to-let loans and there will be a cap on the total amount you can borrow, though it could be £2 million or more.
The Mortgage Helpers can help you compare lots of different Buy to Let deals before proceeding, to ensure the best mortgage for you.