Helping potential UK property investors – A guide to Buy to Let Mortgages

SUTTON COLDFIELD, U.K. - April 25, 2013 - PRLog -- How do Buy to Let Mortgages work?

A buy to let mortgage is a type of mortgage from a bank, building society or specialist lender for the purpose of purchasing a property which you will rent out. In the same way as residential mortgages, the buy to let mortgage will be secured against the property and you will be required to repay the mortgage over a chosen period. However, the main difference between buy to let mortgages and residential  mortgages is that generally the amount mortgage providers are willing to lend is dependent on the expected rental income, rather than your personal income.

Advice on Buy to Let Mortgages

When deciding which buy to let mortgage product is most suitable for you, you should seek professional advice. Even if you are an experienced landlord, keeping up to date with developments in the mortgage markets and knowing which product best meets your needs is difficult. Advice from a mortgage lender differs significantly from the advice you receive from a whole of market mortgage broker.

Mortgage lenders only offer information on their own products and do not provide details or advice regarding any other provider products.

Mortgage brokers offer advice on a range of buy to let products from a wide range of lenders, many of which are only available through brokers and are not available direct to the general public.

When considering buy to let mortgages and getting advice you should consider whether you are willing to pay a fee for the advice. Like most people you will want to keep the costs to a minimum but paying a relatively small fee for all the work a broker will do for you could pay dividends in the long run.

How much can you borrow?

Most buy to let investors purchase a property using a combination of their own money and money borrowed via a buy to let mortgage. To be able to calculate how much money you can comfortably borrow a mortgage adviser will assess the potential rental income you are expected to receive from your buy to let, the amount of deposit you have available and your individual circumstances.

It is usual practice for an adviser to recommend that your rental income is comfortably more than your monthly mortgage payment. This will provide a surplus income each month that can be used to cover other costs such as maintenance, service charges and even potential rental voids. The amount mortgage providers will lend depends on a number of factors, the key ones being:

The expected rental income on the property you wish to buy
The size of the deposit you have available
The type of mortgage product you prefer

Repayment types

There are a number of options available when taking out a buy to let mortgage.

Capital and Interest (Repayment): This type of mortgage reduces the amount you owe each month as your monthly repayments consist of repaying the capital along with the interest

Interest only: In this instance your monthly payments consist only of the interest charges, you do not repay any of the capital borrowed. This will result in lower payments each month, however, you must make arrangements to be able to repay the loan at the end of the mortgage term. As landlords are not required to pay tax on mortgage interest payments, many landlords prefer interest only mortgages

Part repayment, part interest only: As it suggests, this type of mortgage is split into two parts. Part simply pays the interest accrued and the other reduces the capital amount each month

Types of Buy to Let Mortgage

Fixed rate mortgage: On this type of buy to let mortgage the interest rate, and therefore the monthly payment, remains fixed for a specific period of time. After the fixed period has elapsed you will then pay the lender's standard variable rate

Tracker mortgage: On this type of buy to let mortgage the interest rate can fluctuate in line with the Bank of England Base Rate (BBR) or some other specified rate when the mortgage is set up

Discount mortgage: On this type of buy to let mortgage the lender offers a discount on the Standard Variable Rate (SVR) for a specific period of time. As such the payments could go up and down in line with changes to the lender SVR

Standard variable rate: The lender's Standard Variable Rate (SVR) usually forms the basis from which many of the other products are calculated. The lender's SVR usually kicks in at the end of a discount, tracker or fixed deal period

Other Mortgage features to consider

Cash back – This is an incentive that offers a cash lump sum once the mortgage has been taken out

Free legal costs or contribution towards conveyance costs – This feature usually requires the borrower to use a firm of property conveyancers nominated by the lending company

Free valuation or a contribution towards the valuation – This means that either no up-front valuation fee is required or the lender provides a refund of the valuation fee when the mortgage application completes

No early repayment charge – This means that the mortgage scheme is very flexible and will allow you to repay the loan in full, at any time, without having to pay a penalty

No extended early repayment charge – This means that the mortgage product will allow you to repay the loan without having to pay any penalty once the initial benefit period has ended

Fees and charges

When arranging a buy to let mortgage you must also give consideration to the additional fees and charges that will also be associated with arranging the loan itself. These can include:

Valuation fee - is the amount charged to carry out a valuation of the property. Valuations should not be confused with homebuyer's reports as these are much more detailed and are carried out on behalf of the borrower rather than the lender

Booking fee or arrangement fee - these are fees charged by the mortgage lender in connection to the buy to let mortgage product. The booking fee is paid to reserve funds on a mortgage product and is often non-refundable. The arrangement fee is typically charged on completion and can often be added to the overall mortgage

Legal fees - are payable to the solicitor acting on behalf of the borrower. The cost is often greater for a buy to let purchase than for a standard remortgage

Broker fee - Some brokers are paid commission by the lender for selling their products, others will charge a fee, and some will cover their costs by a combination of both. If a fee is payable it can normally be added to the loan and is only payable on successful completion of the mortgage

Early repayment charges – only become payable if an applicant makes an overpayment or pays off the entire mortgage early

For a full guide about the role of a UK Buy To Let Mortgage Broker visit http://www.caboodlefinance.co.uk/Index.asp?T=Buy-To-Let-Mortgage-Broker

For more information and advice about UK Buy To Let Mortgages visit http://www.caboodlefinance.co.uk/

To view some of the deals currently available for UK Buy To Let Mortgages visit http://www.caboodlefinance.co.uk/Index.asp?T=Mortgage-Finder-2