Buy To Let Mortgages

Many people use buy-to-let property as a long term investment, or alternative source of pension provision. In simple terms, the expectation is that property rental income will cover the buy-to-let mortgage repayments & property maintenance costs, whilst rising property prices will provide some capital growth over time, which can be realised when the property is sold.

Buy-to-let mortgages provide individuals with the leverage necessary to invest in property in a manner that was previously only possible for institutions & property professionals. Most people will be familiar with the principle of owning a mortgaged home & are therefore comfortable using the same strategy for property investment.

Prospective investors should note that buy-to-let property is a long term investment & that capital appreciation, (an increase in the property value), is not guaranteed. It is, after all, called buy-to-let, not buy-to-sell. The most lucrative investment decisions will be based on the potential rental return from the buy-to-let property, minus the mortgage & maintenance costs, rather than an expectation of perpetually rising house prices.

The current buy-to-let market is very different to that before the credit crunch. Opportunities still exist for established & prospective landlords, but buy-to-let mortgage lenders are now more cautious when agreeing buy-to-let mortgages, typically requiring higher deposits, more stringent property & rental yield valuations.

New build blocks of flats & apartments, once a buy-to-let favourite, are often shunned by lenders wary of catching a falling knife. So too are properties of non-standard construction, which are seldom financed for buy-to-let by the mainstream lenders.

Mortgage loan-to-value (LTV) ratios of 60%-80% are now commonplace. In other words, lenders expect a deposit of 20%-40% as the norm. Booking & arrangement fees are also being pushed up, to as much as 3% of the loan value, as lenders seek to recover losses from previous years. Borrowers will need to take these extra costs into account when studying the headline rates featured in popular 'Best Buy' tables. Using a mortgage calculator should be one of the first steps in calculating a loan's affordability & the potential return on investment.

Today's buy-to-let landlord not only needs to be prepared to spend more time researching the best buy-to-let mortgage deals, but also needs a deeper understanding of the wider property market, their own investment strategy & goals and to keep abreast of local housing & social trends .