Lending Criteria for Buy to Let Mortgages
Typically buy to let mortgage lenders will apply what is called a rent to interest cover calculation when reviewing a buy to let mortgage application.
This means that the borrower (the prospective buy to let landlord) has to demonstrate that they can generate enough income from a tenant on a regular basis to cover the interest on the mortgage amount requested.
It is also true that if investors are getting into the buy to let market for the first time or are without an extensive range of properties to their name, lenders will usually prefer that they have a non-related income of at least £25,000 to £30,000 per annum in addition to the potential income from rent.
This will help to demonstrate some form of stability and safety net for potential mortgage lenders.
Buy to Let Deposits & Loan to Value (LTV) Amounts
Like other similar forms of property mortgage, the buy-to-let borrower will also be asked to supply a deposit as part of the property acquisition process.
As it stands, mortgages for buy to let investors are available at up to 85 per cent loan to value (LTV), which equates to the borrower being required to stump up a deposit figure of fifteen per cent of the purchase price, as a minimum.
Rent to Interest (RTI) Cover for Residential Landlords
Generally, rent to interest (RTI) cover amounts vary from one buy to let mortgage lender to the next, but, as a general guideline, they are normally between 100 and 130 per cent of the monthly interest payment.
Even though buy to let mortgages have been around for some time, they have not always operated in this fashion.
The buy-to-let mortgage that we all now know today was only established in 1993.
Before this time landlords and property investors would simply go down the commercial mortgage route in order to purchase their property.
Alternative Finance Options for Residential Landlords
If you are new to the buy to let mortgage market, you should understand that there are generally two types of mortgage option available in this field – the interest only mortgage and the repayment buy to let mortgage.
Which one you choose will depend mainly on your current financial situation and your preferred investment strategy.
Interest Only Mortgages
The interest only mortgage option is a popular route to take, especially for property investors and established landlords.
This is because with an interest only finance strategy, an investor will probably be able to continue to build a good sized portfolio of properties.
The cash-flow that this interest only mortgage strategy generates also means that an investor can alter their property capital in a bid to increase the number of investments owned.
This strategy can be a lengthy process, but has been shown to be well worth the effort, as at the end of the buy to let mortgage term, the investment can be sold to repay the initial advance.
Tax Benefits of Interest Only Mortgages
Another scenario that proves beneficial for landlords and property investors are certain tax scenarios.
For example, interest due on buy to let mortgages can be off-set against tax, thereby reducing the overall tax liability.
There are other tax benefits to be had, with many qualified financial advisors and property tax specialists able to point you in the right direction.
Repayment Mortgages
The alternative repayment form of buy to let mortgage is beneficial for different reasons and different types of property investor.
It is often geared towards investors using property as a safety net for later years – i.e. setting themselves up for a pension or looking to build a small portfolio of properties.
The reason a repayment mortgage is more suited to this type of investor is because the monthly interest and capital repayments mean each investor can be sure that the loan is paid off in full at the end of the mortgage term, leaving no unexpected shortfall to be met.
Mortgage Repayment Calculator
Learn what your mortgage repayments will be with our online mortgage calculator.
The calculator will allow you to calculate your monthly repayments based on both interest only and repayment mortgages… mortgage calculator →
Financial Regulation for Buy to Let Mortgages
Lastly, investors looking into this route should be aware that many landlord and buy to let mortgages are not currently regulated by the Financial Conduct Authority – this is in contrast to domestic residential mortgages which are regulated.
Specialist Buy to Let Mortgage Solutions for Landlords & Investors
As leading independent property investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.
If you are a property investor, residential landlord or developer looking to enhance your buy to let property holdings and require buy to let mortgage finance please contact us today to discuss how Investment Property Partners can add value to what you do.
