Independent Financial Advisers
| Buy to Let Mortgages |
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Buy to let Mortgages, General - Non Standard Tenants? Best Fixed Rate, Tracker and Discount Rate Buy to Let Mortgages Although the market may have shrunk, many mortgage lenders are still happy to lend money for buy to let properties. The market is very dynamic, both in relation to the products on offer and mortgage lenders criteria. We strongly recommend you obtain suitable Independent Financial Advice. Buy to Let Mortgages, General So you have given it a lot of thought and decided to enter the buy to let market or let out your current home? This information is aimed at giving a few general pointers on things to be aware of when looking to take a buy to let mortgage. Whilst a lot of the general mortgage principles still apply to buy to let mortgages and the mortgages are assessed on the risk to the mortgage lender in lending you the money, there are a couple of key differences. The first key difference comes in that if all goes according to plan the monthly mortgage payments will be paid from the rent you receive and not from your own salary/income. This is reflected in how lenders decide if the buy to let mortgage is affordable to you. Whilst virtually all lenders will expect you to have employed or self employed income to fund the mortgage should the property be untenanted, most asses the amount they will lend based on the likely rent you will receive. The common mistake most new buy to let applicants make is in over estimating the likely rent or under estimating the degree of safety margin lenders insist on. In many cases the over estimation is not the client's fault. Often the estimated rental figures clients use are based on figures provided by Estate Agents and Property Developers whose interest is in selling the property. Most Agents or Property developers are competing for your custom, a degree of gilding the lily when it comes to providing valuations for sale and rental yield is common place. Most lenders do not use the estimates provided by Estate Agents or Property Developers, but those provided by an appointed independent surveyor. The surveyor is not competing for your business and is liable should the figures provided be inaccurate. A surveyor will err on the side of caution with the rental yield valuations. Couple this with the fact that most lenders not only expect the rent to cover the monthly interest only mortgage payments, but for there to also be a 20-25% safety margin. So if your mortgage payments were a £1,000 for the desired mortgage the lender will expect the rental figure provided by its surveyor to be £1,200-£1,250. Buy to Let Mortgages, Non Standard Tenants The next core difference comes in regulatory requirements on both the mortgage lender and you as a landlord. As it is considered a commercial lending transaction, buy to let mortgages are not regulated by the Financial Services Authority. Borrowers therefore have a greater responsibility to ensure they understand the contracts they are entering. The one exception to this is if 40% or more of the property will be occupied by the applicant or a member of their immediate/extended family. If the property is to be occupied by a family member many buy to let lenders will consider this a mortgage for residential use and be unwilling to lend. In these cases a traditional residential mortgage may be more appropriate. Who will occupy the property is a factor lenders take a great interest in, it affects the risk of the transaction to them. Most buy to let mortgages are designed for letting on a single, traditional assured short-hold tenancy agreement (AST) to a family or associated individuals. Where properties are to be let to multiple individuals on a room only basis, student lets, holiday lets or lets to the local authority to provide social housing a more specialised lending proposition will be required. The reason for this greater focus on whom the tenant will be all stems from the lenders looking at everything in a worst case scenario when assessing their risks. If a property has been used to provide social housing or student accommodation, the mortgage lenders have greater concern that should they repossess it would not be in readily marketable condition. On the subject of holiday lets, they are perhaps more concerned about holiday lets susceptibility to not only fluctuations in the housing market but also leisure and tourism. If you or members of your family are considering purchasing a buy to let property, please feel free to contact us to talk with an Independent Financial Adviser and Mortgage Broker. We are able to provide home appointments across the whole of West Sussex - Brighton, Hove, Haywards Heath & Crawley, East Sussex, Surrey - Croydon Sutton, Reigate, Redhill, South London - Wimbledon, Fulham, Chelsea and Hammersmith and Central London. "The property may be repossessed if you do not keep up repayments on the mortgage. In addition - The FSA does not regulate some forms of buy to let mortgage." |
