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Financemate >> Mortgage >> Buy-to Let Mortgage

Buy To Let Mortgage

Buy to Let Mortgage or buying a property to rent or lease out is becoming immensely popular option in the United Kingdom. However it is important to study the advantages and risks of this investment option before opting for it.

Reasons for increasing popularity of this investment option are many

Firstly, market interest rates charged for this type of mortgage are low and hence it seems an attractive option. Secondly your loan is backed by an investment in an asset which is long term in nature and fairly stable compared to the stock market investments. Over the years there has also been an increase in demand for rental or leased accommodation. The increase in number of students in the UK has contributed to the inflated demand. Growing divorce rates have also let to rising need for separate accommodation which is usually rented. Also, the mortgage lenders market has become fiercely competitive and thus tailor made Buy To Let Mortgages are now available which are attracting potential landlords.

To begin with lets understand the terms on which buy to let mortgages are sanctioned

The lenders usually demand a deposit or a put down of 15 to 20 percent of your mortgage loan. Therefore the loan amount is directly proportionate to your deposit. Another key consideration is the expected rent. The rent receivable should be about 100 to 140 percent of your mortgage payment. The reason behind such a high rent expectation is that it covers against the risk of un rented periods.

A mortgage option which has become attractive these days is wherein only interest is charged as per the mortgage terms. You only have to pay the principal mortgage amount on the sale of the property.

Now a little about the types of investors and their investment levels. There are two types of investors who utilize the services of Buy To Let Mortgages. One being the so called “amateur landlord” who has an investment base of hardly three to four properties. The other is called the “professional investor” who maintains a portfolio ranging from 100 to 400 properties. Whatever be your investment level, you should be cautious about your responsibilities as a landlord and your key taxation issues. You have to make sure that you get a good mortgage deal and invest in a property that gives you a risk free or a low risk return.