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you are here: Homepage > Mortgages and Loans >  Best Buy to Let Mortgage Rates for UK Investors


Today's Buy to Let Mortgage Providers...


Introduction - In recent years, many more properties are being purchased on a buy to let basis. In essence, a building is purchased with the view to letting it out to a tenant in return for a rental income. The landlord hopes that the rental yield will cover his or her mortgage with enough left over perhaps for a small taxable profit. Property is bought on a buy to let basis as an investment, often as a wave of saving for ones retirement. Equities and pensions have performed poorly in recent years and a buy to let is seen as an ideal way of saving for one's future. On average a buy to let investor looks to hold a property for a period of 17 years after which they will sell and as house prices tend to rise, the equity value in the home should have risen enough top provide the landlord's with a decent profit which can then be used to help fund for retirement. A buy to let mortgage is a debt or charge, secured against a rental property, the building or a piece of land. Buy to let mortgage financial products are sometimes known as Residential Investment Loans. Landlord Mortgages can be obtained in the name of an individual or individuals or in that name of a company or partnership. The lender has security in the property, so that if the borrower cannot keep up repayments under the terms set up with their mortgage, the lender can repossess property, to sell it and obtain their money back.

Main Characteristics - the terms and conditions of a mortgage (or debt) will require the mortgagee to repay their debts at a frequency agreed at that outset. This is usually monthly and and frequency is stated before contract is signed. The mortgage length is typically twenty-five years. The longer the repayment period, the more interest on the loan is usually charged. Interest charges are made by that lender in order to make a return on the money that they are lending to the landlord. These interest charges will vary from lender to lender.

Types - Landlords must choose between fixed, variable, capped to flexible interest charges. With fixed rates interest mortgages, the interest rate is fixed for a period of time and does not alter. This enables the mortgagee to budget each month to know exactly what the monthly repayment will be relative to rental income form the tenants. After the fixed rate period of time is complete, often that mortgagee is free to shop around and find a better deal � however typically during the fixed period penalty charges for a re-mortgage between lenders are levied. Typically once a fixed period has finished cent penalty charges did not apply. The characteristics of landlord mortgages are slightly different than those of an ordinary residential mortgage. Firstly, the rate of interst is usually slightly higher (on average 0.5% to 1%) to reflect the increased perceived risk of letting tenants live in the rental property. Secondly, when applying for a residential home loan the landlord is usually expected to make a greater deposit commitment - the size of the deposit is larger than a residential mortgage; typically as much as 20% of the loan to value (LTV). For example, the deposit will be �40k for an �160k mortgage on a property worth �200k.

Rentals Returns - Before the loan is approved in principle the underwriter will expect to see that the rental income equals approximately 130% of monthly mortgage (this figure varies according with lenders). This figure provides a rough guide of the anticipated profitability of the let and is therefore also calculated with taking in account the average cost of repairs, maintenance and most importantly, unplanned rental void periods. As house process have risen, the % is increasing from 130% - 150% on average. In addition, the lender will expect you use an accredited Association of Residential Agents letting agent confirm the rental value in writing and also manage the property for the first 6 - 12 months. The was set up in 1996 improve the quality and number of private rental properties in the UK. This gives the lender more confidence you are investing prudently.

Application Factors - other factors are also taken into consideration by the lender when approving a landlord mortgage - such as personal Income - is still assessed as measure of personal stability, from an underwriting point of view, as a means of determining the proportion of LTV and whether the candidate is stretching themselves if a long void period occurred where the property is unoccupied between rent paying tenants. Under some landlord lending loans, you have the scope buy more than one investment property into a portfolio. Products like a �currency mortgage� have recently been introduced for these high net worth individuals. These products are managed in a way that borrows money at the lowest possible interest rate amongst a suite of currencies. The Swiss franc has become particularly popular due its long term stability and low rate (relative to the US or far east.)

The popularity of landlord borrowing products has reached a point where some south eastern geographic areas are seen as highly risky in terms of the short to medium term return on investment proportions.  However, as the huge demand for rental housing continues (driven by increased economic migration, more single and divorced people living alone) the number of new properties being built continues to lag far behind - this has sustained and increased overall house prices by around a 8-10% growth rate in 2007.

Types of Tenant - before a landlord secures a residential home loan on a potential property he should consider the type of tenant that will be attracted to the type of property under consideration.   Visit local letting agents to see if the average rental income for certain property types will adequately cover the monthly mortgage repayment costs.   location is also very important to maximise ROI - transport links for commuter tenants will be an important consideration so plan and research the local area before spending money on lender application fees, surveys, solicitors fees etc.




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