Buy To Let

Most homes are purchased for the owner to live in and mortgages are lent on the basis that the borrower will live in the property. If the owner wishes to let a property, either for short term lets (such as holiday letting or student accommodation) or for long term lets (e.g. letting out the property for a year or more), then the owner must obtain a buy-to-let mortgage rather than a conventional one.

Buy to let mortgages cost a little more than a conventional mortgage – around 1% more – and this reflects the additional risks involved to the lender. Buy to let mortgages typically require the owner to put down a deposit of 25% or more, whereas conventional mortgages require a much smaller deposit.

Traditionally buy-to-let lenders want rent to cover 125% of the mortgage repayments, although many have relaxed this in recent years, despite this they will still be looking for suitable assurance that the payments will be met.

The insurance on buy to let properties is also specialised and has conditions and also costs a little more than conventional home insurance.

This popularity of buy to let mortgages has grown in recent years as many people use it as an investment tool using the balance above the repayment amount as a means of generating income. Often people will have portfolios consisting of numerous properties. Obviously this is not without risk as a buy to let mortgage carries the same potential problems as a normal mortgage and more.

As they are often more expensive mortgagees are more susceptible to fluctuations in the market such interest rate rises and house price changes. For example in an economic downturn there can be less demand for rental property or a drop on rent prices which will squeeze profits. Also they are responsible for the maintenance of the property and the costs that this incurs which can reduce income.

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