GDC Associates - Independent Financial Advisers

Buy Let Mortgages 

One of the profitable long-term investments is purchasing property.. Buying to let has the potential of providing an income in the form of rent. It may also be an asset that can easily increase in value over time. Since not everyone has the income required to purchase rental properties, buy to let mortgages makes this opportunity feasible.

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In the buy to let market, an investor purchases a property for the sole purpose of renting it out to tenants.

Buy to let mortgages are ideal for property investors. This option can be utilized rather than a pension plan. It is a great way to invest since you can continue to let the property or release the properties equity by doing what is known as an equity release plan.

There are a few differences in a traditional mortgage and a buy to let mortgage. With a buy to let mortgage, the income received from rent is used to make the mortgage payments. The monthly rental income pays for the mortgage: the income received from the rental property is figured in to the borrower’s ability to repay the mortgage. After the mortgage is completely payed, the property is yours; the investor can continue to rent the property for a monthly income. If you choose to continue renting, the income belongs to you. At this time you may also decide to sell you investment for a lump sum of money.

When applying for a buy to let mortgage, borrowers must report the expected rental income to the lender. The monthly rental income should be at least 1.25 times the monthly mortgage payment, though some lenders may expect more. Your lender might request a valuation on the property before approving a buy to let mortgage. This valuation determines if the property will achieve the desired rental income. Some lenders will absorb the cost of the valuation; if not, you will be responsible for this cost. If you are at all in doubt about the potential rental income of a property, it may be wise to pay for an independent valuation before applying for a mortgage. A lender will never approve a buy to let mortgage if the expected rental income is too low.

Interest rates for a buy to let mortgage are only slightly higher than those of normal residential mortgages. As always, the interest rates and the terms of repayment vary with each lender. Before applying for a buy to let mortgage, search all lenders to find the one that is right for your investment.

Tips: You may in fact be allowed to borrow more money in time since your income will increase after the mortgage is secured. This ultimately means the potential income you receive from renting plays a factor in the lenders risk assessment. Buying to let is no walk in the park. Hours of planning and effort are required to make this venture a success. Make sure you obtain professional advice prior to jumping into a buy to let mortgage.