An increasing number of us have one or more buy to let mortgages. This is because property has for a long time, and still is, considered to be an excellent long term investment. A buy to let mortgage helps to fund the purchase of investment property which is then rented to a tenant.
Buy to let mortgages are fairly similar to residential mortgages, the main difference is that for most buy to let mortgages the affordability calculation is based on the estimated rental income the property can expect to obtain and not the private income of the applicant or applicants.
Houses, flats and apartments are all popular types of property that are purchased as investment property and rented out to tenants. Also popular are shops and other retail units that are often purchased using funds raised by a commercial mortgage. As for a buy to let mortgage, commercial mortgages also calculate affordability based on the estimated rental income of the property.
It has been more difficult to obtain finance since the credit crunch. It has therefore been more difficult to obtain buy to let mortgages as finance institutions changed their lending criteria to make it more stringent. Buy to let mortgage lending has changed in that the loan to values have decreased, any bad credit history is less acceptable, arrangement fees have increased and despite the low Bank of England base rate the interest, rates for buy to let and commercial mortgages have increased.
Buy to let mortgage calculators are available online to help you work out how much a buy to let mortgage may cost each month on either an interest only or repayment option.
Currently there are less buy to let mortgage providers in the market than there were before the credit crunch. However the lenders are starting to become slightly more competitive as more funds are starting to become available to them. There is a fairly wide range of buy to let mortgage facilities available on the market. The best rates are obtained at loan to values of 60% or less. Most lenders offer buy to let mortgages up to 75% and there are limited plans offering facilities as high as 85%. Generally the higher the loan to value required the greater the interest rate and arrangement costs. Also above 75% there maybe additional criteria such as the applicant may already need to have one or more buy to let mortgages, so these facilities are not suitable for the first time landlord. Despite being excellent rental properties flats and apartments can also have buy to let mortgage restrictions. For flats and apartments the maximum loan to value available for buy to let mortgages is 75%, and for new build flats this can be further reduced to 65%.