Buy to let mortgages allow homeowners the freedom to buy property wherever they like and at any stage of their life. Basically anyone can be a buy to let landlord, as long as he has a regular source of income such as a regular job. Buy to let properties are known as sub-prime mortgages. Buy to Let mortgages are typically secured loans, and they entail a much higher rate of interest. These rates can sometimes be as high as 25%.
How Does Buy To Let Work?
Buy to let mortgages are usually unsecured, but they do offer some advantages over conventional mortgages. They include flexibility of using the property as collateral, and in many cases there is no requirement for security deposits. Buy to let mortgages also come with flexible repayment terms, which can mean a smaller amount of monthly repayments over the term. It is important to ensure that the buy to let mortgage payments will be affordable, as otherwise there may be a possibility of repossession of the property. Another important aspect of buy to let mortgages is that the landlord is not obliged to provide rental income to the tenants. This is contrary to conventional mortgages, where the landlord is legally obligated to provide rental income.
Advantages & Disadvantages
Buy to let mortgages also differ from normal mortgages in that they don’t always require a security deposit against the property. This can often be very substantial, butthe property owner might have to fork out a hefty sum if the property is repossessed. The key benefit to landlords is that they do not have to worry about gaining access to their property should the tenant default on the repayments. Buy to let landlords are also relieved from the expense of arranging a traditional mortgage and may even qualify for zero down payments. However, the disadvantages are that a buy to let landlord is liable to repossess the property should he be unable to collect rental payments.
Choosing A Lender
Most buy to let mortgages are provided by specialist lenders, which are usually separated into two groups. One group features lenders who are members of the Royal Institute of Real Estate (RIAER). These lenders usually require a higher deposit, although this can vary. Other lenders, who are not members of RIAER, offer a standard mortgage rate. We spoke to a buy to let company in Glasgow, who said the main thing to be aware of is the terms of the mortgage. Just because you may not be paying a large deposit doesn’t mean you are getting a good deal.
A key disadvantage of this type of buy to let mortgage is that it often involves high fees, which eat into the profits of the landlord. Buy to let landlords also struggle to find tenants, as there is often a lack of choice for those who wish to rent their properties. In order to attract tenants, the landlord often requires an appropriate advertising strategy and must ensure that sufficient advertising links are in place. Buy to let landlords often face a lot of bureaucracy, with the amount of paperwork being often a stumbling block for them.
Summary
Buy to let mortgages also differ to conventional mortgages in that they are typically more expensive, due to factors such as increased deposit and interest rates, increased tenant costs and larger repayments over time. As a result, when a buy to let landlord seeks out a mortgage quote, one of the key factors that will affect the decision is whether the deal offered is in line with what the individual or business needs. When looking to compare buy to let mortgages, the key thing to bear in mind is that the mortgage is chosen needs to be a good match to the needs of both the landlord and the tenant. The choice is usually influenced by factors such as available rent, the condition of the property and size of the landlord’s paying group.