Buy to let mortgages
In the field of buy to let mortgages, best buys are not always easy to find. The information gathered here will help you when looking for and choosing the best deals.
The economy a few years back was seen to be better and stronger than it is now. Because of the economic stability then, many investors bought property utilizing buy to let mortgages.
A few years later due to the recession, the value of many of these properties has crashed. Several lenders have been forced to close or rethink their screening processes, with the downturn in the economy causing mortgage lenders to reconsider how much they are prepared to offer, particularly regarding buy to let mortgages.
Buy to Let Mortgages Currently Offered
As lenders have become more stringent in screening for applicants, the amounts they are offering has also changed significantly. According to UK based research, only 5% of buy to let mortgages have remained from September 2007 to May 2009, with larger down payments required from the applicant. Interest rates have also increased, also as a result of the economic downturn.
Rental income is one of the major factors that lenders consider. The amount of rent that can be earned is generally viewed as the primary source of income. Other sources of income for the property owner may also be noted.
Offers of buy to let mortgages are usually made at up to three times the applicant's salary with 50% of the estimated yearly profits taken from rent. When applying for this type of mortgage, the estimated profits taken from the rent should exceed 125% of the applicant's other monthly loan payments.
Types of Buy to Let Mortgages
- Fixed rate Mortgage - as the name implies, the interest rates remain constant regardless of changes in the market forces.
- Discount Rate Mortgage - payments are reduced depending on the length of time needed to pay back the mortgage.
- Cashback Mortgage - the lender pays cash back when the applicant pays on time or upon completion of the repayment.
- Flexible Mortgage - this type of mortgage allows the applicant to pay back with some consideration to their situation or ability to repay the mortgage.
- Base Rate Tracker Mortgage - this tracks a central bank base rate.
- Interest Only or Capital Repayment Mortgage - with this mortgage, other sources of investment are used to pay off the mortgage dues. For this to be useful, the alternative investment must be large enough to cover the mortgage payment.
Factors to Consider When Taking Out Buy to Let Mortgages
When buying property for letting, it is important to be "business savvy". Research on suitable property, its current and foreseeable value, the location of the property and whether there would be a good stream of tenants, as well as a list of possible responsibilities as the property owner, should all be taken into consideration.
When looking for buy to let mortgages, best buys should not be difficult to find as long as you have a firm business plan and continue to treat the property being let as a business.