Buy to let mortgages and remortgages are becoming an increasingly popular means of investment both in the UK and around the world.
With access to the whole market, we are in a prime position to help with your property investments or expand your current portfolio.
The popularity of buy to let investments is in part due to their transparency. Investors generally know how much they owe on a property, what the property is worth and subsequently how much equity they have in a rental property. Whilst the property market can fluctuate, over the long term, they are generally considered to be a sound investment.
Buy to let mortgages are designed for borrowers who intend to let the property out to tenants and are offered on a slightly different basis than a normal residential mortgage due to how affordability is calculated.
When considering purchasing a rental property it’s important to consider not only the mortgage costs but also the rental income a property may yield. The main difference from a lender’s perspective when underwriting applications for rental properties is the rental yield.
Buy to let mortgages are repaid by the monthly rental income of the property. If you are buying a new property the lender’s valuer will put a rental valuation on the property, as well as a normal bricks and mortar valuation. This will allow the lender to see if the potential rental will be enough to cover the new mortgage payments. If you already have a tenanted property, or you want to purchase a property currently being tenanted, they will use the current rental agreement, which is called an AST (Assured Shorthold Tenancy) for proof of rental income.
You should be careful to ensure that the rental income for a property is realistically achievable. The rental income should cover the monthly mortgage payments and allow additional funds to accumulate for any maintenance required to the property and for times when the property doesn’t have a tenant paying rent. If the property isn’t rented out, the mortgage will still need to be paid.
Letting agents could help to ensure the property is let out as much as possible and will do their best to make sure the property is never vacant, but they will charge a monthly letting fee. Any letting fees should also be covered by the monthly rental payments. If the rental payments on a buy to let property do not cover any of the points made above you may want to consider how the buy to let will be funded.
A typical example of how a buy to let rental property is funded and how the monthly rental payments would cover mortgage costs could be seen as follows:
You have a rental property with a monthly mortgage payment of £700, if the rental income for this was £700 then this would be a 100% rental yield. The majority of lenders want to see a rental yield of around 125% (meaning the rental income should cover the mortgage payments by that amount). For a rental yield of 125% with a monthly mortgage payment of £700 a rental payment of £840 would be required.
Because of the way buy to let mortgages are repaid, they could be viewed as self funding. This simply means that, as long as the rental income meets the lender’s criteria, the new mortgage could be deemed affordable. However, a lender would normally require that you have an additional source of income such as full time employment.
The first thing to do would be to speak to a mortgage broker who deals with buy to let mortgages.
A mortgage broker with buy to let experience should be able to tell you how much you could borrow and the potential monthly mortgage payments based on the property value and potential rental income.
If you’re an experienced investor or new to the buy to let mortgage market we could help.