A mortgage is basically a loan secured upon an asset. Most mortgages are loans granted to home buyers to buy a house or flat and in most cases the mortgage is the single largest financial liability that most will take on during their lives.
A Buy to Let mortgage is a loan which, as the name suggests, is lent to the buyer of a residential property for the purposes of investment rather than personal occupation. Both loans are used to buy houses or flats but the Buy to Let mortgage is different in some subtle but important ways.
Buying to let is a popular and potentially lucrative way to invest your cash. It is potentially lucrative because it offers you several benefits over the simple investment bond or building society account. There is potential for capital growth and rental income.
Because a Buy to Let mortgage is a loan on a property investment, the lender is likely to want to take into account several additional factors to those expected when buying your home for personal occupation. A lender will want to be sure that if you borrow from them, you are earning enough to pay the mortgage payments.
With a Buy to Let mortgage the mortgage adviser will look at your own income and expenses, but also at the rental income the investment is likely to produce. They will have criteria including Loan to Value, which we have explained elsewhere on our blog, but they are likely to also set maximum ratios of monthly rent vs monthly mortgage repayment. They will look at net rental income (after management costs, Buy to Let House Insurance, etc) and they will want to make sure that if interest rates rise, you are still able to pay the mortgage even if rents remain static.
Of course, the lender is keen to lend money. That is their business. However, they need their money back too and it’s not in the lender’s (the mortgagee’s) interest to hold a lot of risky loans with a poor return. This is why they have other lending criteria for Buy to Let mortgages and in many cases this is why borrowing for your own home is cheaper than borrowing more money for a second property investment. Lender’s need to know what you are buying - and why they are lending you money before they quote you terms.
For more information or to borrow on the best terms contact us for an informal and friendly chat.
Call 01628 507477 or email us here: team@mortgagerequired.com for more information.
Related Blog post: Why do People Buy to Let?
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