Buy to Let Mortgages
Most mortgage providers actively promote buy-to-let facilities and recognise it as a sound investment strategy. Competition between mortgage providers means that repayment rates will be keen, matching standard mortgage rates to owner-occupiers. In assessing borrowing limits, projected rental income is allowed as part of the borrower's income calculation and some lenders will consider funding more than one buy-to-let property per borrower.
In determining the viability of a buy to let mortgage, it is of course essential to determine whether the rental income will more than cover the mortgage repayments and other expenses. As a general guide, monthly rental income needs to be at least 130% of the monthly loan repayment sum. Unlike standard mortgage schemes, buy-to-let rarely offers '100% of capital' deals, and '85% of capital' is likely to be the maximum on offer.
Mortgage interest payments can be an allowable expense to set against rental income in determining your liability to income tax. Your mortgage provider, local tax office or tax adviser will be able to help you check how this is likely to affect you.
A buy-to-let mortgage is sometimes called a Residential Investment Loan and, because they are considered business investments, buy-to-let mortgages are not regulated by The Mortgage Code.
In subscribing to a buy to let scheme, you will almost certainly also have to:
- show you have a sound investment plan by providing facts and figures
- agree to a professionally drawn up lease
- use an ARLA registered letting agent to handle the letting
- pay for a comprehensive insurance policy
- agree to certain restrictions on the type of let and/or tenants.
