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POSTED 09 March 2016 Lettings

How does Buy to Let Work?

buy to let

What is a Buy to Let Mortgage?

Buy to let mortgages are for landlords who buy property specifically to rent out. They are usually more expensive than normal mortgages, but are good for those who want to become property investors.

Investing in property is a risk, because property prices can rise and they can fall, so there is an element of uncertainty involved.

There are a number of things that you need to think about when it comes to buy to let property, so read on to discover more in our buy to let guide.

Getting a Buy to Let Mortgage

If you don’t already own your home, then you may find it difficult to get a buy to let mortgage.

You should have a good credit record, and not have too many other borrowings or be too stretched with them, such as credit cards or existing mortgages. You should be earning more than £25,000 a year to have a good chance of being granted a buy to let mortgage.

Lenders may have upper age limits, typically around 70 or 75. This is the oldest you can be when the mortgage ends.

How does a Buy to Let Mortgage work?

Buy to let mortgages have a few differences from the standard mortgage, including the fact that the minimum deposit for a buy to let mortgage is at least 25%, and the fees and interest rates tend to be higher too.

Buy to let mortgages tend to be interest-only. This means that you only pay the interest off, and at the end of the mortgage term you repay the capital in full.

Unlike regular mortgages, buy to let mortgages are not regulated by the Financial Conduct Authority. However, if the lender is FCA authorised, then you are likely to be treated fairly.

How much can you borrow?

The amount that you can borrow is linked to the amount of rent that you are expecting to charge. Lenders will typically look for a rental income that is a quarter to a third higher than the mortgage.

You should do some research into how much rent you can charge by looking into local letting agents or property websites to see how much other people are charging.

Choosing a mortgage

When it comes to choosing a lender to take your buy to let mortgage out with, then you have lots of choice. Most high street banks offer buy to let, so it’s a good idea to talk to a mortgage broker to make sure that you’re making the right choice.

Make sure that you research into at least three different mortgages or lenders for comparison, and if you use comparison sites, use a few different ones.

Remember to compare the mortgage fees too, as they can vary a lot and can depend on whether it’s a flat fee or a percentage of the loan.

Back up plan for no rent

Don’t assume that your property will always have tenants, because there will definitely be periods of time where your property will be empty. You will therefore need to have some money to draw upon just in case you don’t have anyone paying rent.

In a similar vein, you’ll need some fall back money for major repairs, such as boiler breakdown.

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