Buy to let mortgages: what are they? Should I be interested in one?
Buy-to-let mortgages have become available in the United Kingdom around the end of nineties. A buy-to-let mortgage is a mortage that allows landlords to borrow funds to be used to a property with a view to rent it to tenants.
For normal mortgages, mortgage brokers calculate the total an applicant can afford to borrow based on their yearly earnings. It is not so for a buy-to-let mortgage.
Usually mortgage rates for buy-to-let mortgages are fairly similar to normal mortgages, but are normally higher and with higher fees. Banks believe that a buy-to-let investment carries a higher risk compared to a regular mortgage. This risk is reflected in the rates they offer and fees.
Property prices have hugely increased in the UK during the last fifteen years. The result has been an explosion of the letting market as many people cannot afford the deposit necessary for a regular mortgage. This has made buy-to-let very attractive to property investors.
Tax advantages is another reason for the success of buy-to-let mortgages. The income a landlord earns from the rent of a buy-to-let property is subject to the same tax rules as salary (22%, 40% or 50% tax depending on the various tax bands). There are however several costs investors can deduct from their tax bill: interest on mortgage payments and maintenance costs for example.
Buy-to-let has gained a bad reputation in the recent years. Many people say that buy-to-let is one of the key reasons for the exploding house prices in the United Kingdom. A good example is London, where it has been estimated that more than 30% of the properties are bought with a view of renting them to tenants.
Is buy-to-let still an interesting investment for property investors? There is no straight answer. Every buy-to-let is different, and the recipe for buy-to-let success has not changed. Landlords need to use a mortgage calculator to determine whether they can afford mortgage payments, do the maths to estimate costs and income, and make sure that they invest in an area with a strong demand for letting properties.
It also pays to talk to a mortgage adviser that understands buy to let mortgages. The internet has got loads of resources and information such as buy to let guides, or buy to let information for new landlords. Competition is strong between mortgage brokers, so it's also a good idea to compare the market and negotiate to get the best mortgage rates.
For normal mortgages, mortgage brokers calculate the total an applicant can afford to borrow based on their yearly earnings. It is not so for a buy-to-let mortgage.
Usually mortgage rates for buy-to-let mortgages are fairly similar to normal mortgages, but are normally higher and with higher fees. Banks believe that a buy-to-let investment carries a higher risk compared to a regular mortgage. This risk is reflected in the rates they offer and fees.
Property prices have hugely increased in the UK during the last fifteen years. The result has been an explosion of the letting market as many people cannot afford the deposit necessary for a regular mortgage. This has made buy-to-let very attractive to property investors.
Tax advantages is another reason for the success of buy-to-let mortgages. The income a landlord earns from the rent of a buy-to-let property is subject to the same tax rules as salary (22%, 40% or 50% tax depending on the various tax bands). There are however several costs investors can deduct from their tax bill: interest on mortgage payments and maintenance costs for example.
Buy-to-let has gained a bad reputation in the recent years. Many people say that buy-to-let is one of the key reasons for the exploding house prices in the United Kingdom. A good example is London, where it has been estimated that more than 30% of the properties are bought with a view of renting them to tenants.
Is buy-to-let still an interesting investment for property investors? There is no straight answer. Every buy-to-let is different, and the recipe for buy-to-let success has not changed. Landlords need to use a mortgage calculator to determine whether they can afford mortgage payments, do the maths to estimate costs and income, and make sure that they invest in an area with a strong demand for letting properties.
It also pays to talk to a mortgage adviser that understands buy to let mortgages. The internet has got loads of resources and information such as buy to let guides, or buy to let information for new landlords. Competition is strong between mortgage brokers, so it's also a good idea to compare the market and negotiate to get the best mortgage rates.
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