The best way to use a buy to let mortgage

Most people class property purchase as a serious, if rather daunting, investment, and indeed those that purchased property over previous years have seen just what a great investment they can be, with equity levels going through the roof as a result of increasing house prices.

Although there is now speculation of house prices coming down, the fall is not expected to be a major one, and so those that purchase their property years ago will still find themselves with impressive equity levels.

Many people purchase a property as a home for themselves as well as a future investment and something to leave to their loved ones. However, there are also many other people that purchase a property both as an investment for the future and to create a steady stream of income, and these are landlords.

Landlords may have a strong of properties that they rent out to other people or some just have one property that they rent out. If you plan to buy a property for the purpose of renting it out you may be able to get a buy to let mortgage. Below are some commonly asked questions relating to buy to let.

What are the benefits of buy to let?

The main benefits of buying a property to rent out is that you will be purchasing something that will hopefully grow in value over the years, which makes it a sound investment for you and your loved ones for the future, and you can also enjoy a steady stream of income each month from the rent that you charge, which will hopefully cover your mortgage payments and leave you with a little extra on top.

Where do I go for a buy to let mortgage and will I qualify?

You will find that a number of lenders offer buy to let mortgages to those looking to purchase a property with a view to renting it out. Eligibility requirements can vary from one lender to another, but amongst the factors generally taken into account are your credit history and rating, and your income.

I’ve heard that buy to let is getting more difficult – is this true?

When it comes to buy to let there are good and bad points. Firstly, as with all areas of the finance markets getting funding could prove more difficult, as lenders are clamping down when it comes to offering loans and finance. The high cost of property at the moment could also make affordability more difficult.

On the upside, recent reports have suggested that finding suitable tenants for buy to let properties is getting easier, possibly because many people cannot afford to buy and therefore rely more on rental properties.

Which income will the lender take into account?

This can vary from one lender to another. Some lenders may take into account your regular income and your projected rental income when determining whether you are eligible for a buy to let mortgage and how much you can borrow. Some lenders may take into account only your expected rental income.

What are the interest rates like on buy to let mortgages?

The interest rates on buy to let mortgages does tend to be a little higher than on standard mortgages, although with some lenders the difference is not all that significant. You need to make sure that, as with any other loan or mortgage, you compare a range of buy to let mortgage from a variety of lenders so that you can find a competitive deal.

Alternatively you could go through a buy to let broker, who can compare deals from a wide range of lenders on your behalf in order to find the best one based on your needs and circumstances.

How much deposit will I have to put down?

With most lenders you will have to put down a higher deposit with a buy to let mortgage than you would with a standard one. Some lenders may want up to 25% of the value of the property by way of a deposit, but the requirements can vary from one lender to another, so you should check deposit requirements when you compare these mortgages.

What if I buy a property to rent out but have periods when nobody is renting it?

This is a risk that all buy to let investors have to take, and it is important that you ensure that you have some sort of financial back up in the event that this happens.

However, recent reports have shown that an increasing number of landlords manage to find suitable tenants for their properties within a week or so, and given the high cost of property in the UK you will find that more and more people – particularly first time buyers – may be relying on rental properties