Mr M.R. Asks:
Property prices in this area at least seem to have stabilised and I am considering buying a rental property. I would need to take out a Buy To Let mortgage but I am unsure if they are still around or what I need to consider.
Peter Sharratt Answers:
Buy To Let (BTL) Mortgages are still around but there are a number of things to be aware of starting with the deposit as you will typically need at least a 25% (ideally more). A property for £200,000 would require a deposit of £50,000. Some lenders may ask for an even larger deposit for new build properties and may not lend at all against new build apartments or flats. The Interest Rate you will be charged is likely to be greater than you would be charged for a normal Residential Mortgage therefore do not use Residential Rates as a guide to what you should expect to pay. The lender will almost certainly charge an arrangement fee of some description (plus a valuation fee). It could be a fixed amount, perhaps £999 or a percentage fee based on the amount borrowed which can be up to 3%. On a mortgage of £150,000 this would be £4,500.
The premise behind a BTL mortgage is that the Rental Income will be sufficient to cover the mortgage payment but some lenders will want to see that you also have an employed/self employed income of £25,000 as well and most will not accept first time buyers. The lender will want to see that the rental income is sufficient to cover the Mortgage Payment but they will also build in a safety margin of typically 25%. I.e. the rental income needs to be 25% greater than the mortgage payment. They may base the mortgage payment on a notional mortgage Interest Rate (which is likely to be higher) and not your actual mortgage Interest Rate or payment. I have raised a lot of potential issues which do highlight the need for advice from an Independent Mortgage Adviser. They can ascertain your objectives and research the lenders accordingly and hopefully find one that will lend you the money on a deal that you are happy with. Please be aware though that BTL mortgages are NOT regulated by the Financial Services Authority and the value of property can go up and down. If you do not have a tenant the mortgage will still need to be paid. Please be sure you can afford the mortgage during such periods. If interest rates increased you will have to fund any shortfall.
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