What is buy-to-let?
Buy to let basics
Buying a property in order to let it out offers the prospect of decent income today as well as capital appreciation over the longer term if the market stages a recovery.
While average property prices across the UK have been flat in recent years, rents have been on the increase, with people who would once have bought their own homes chasing a limited supply of rental property. As a result, the yields on buy-to-let investments have risen.
Rising rental yields
Depending on the type of property and its location, buy-to-let yields are now running at between 5 and 10 per cent. That’s well ahead of what any savings account will currently pay.
The key to making buy-to-let work is finding the best possible mortgage deal, which is why it is important to take impartial advice. At Which? Mortgage Advisers, we can help you find the right buy-to-let loan for you, and ensure that you keep your mortgage payments to a minimum, so that you can maximise the return on your investment.
Buy to let mortgages
While buy-to-let mortgages are similar to conventional home loans, there are some important differences, which our advisers can help you get to grips with.
Generally speaking, buy-to-let mortgage rates tend to be a little higher – with deals currently starting at around 3 per cent. But in addition to the headline rate of interest, look out for arrangement fees, which can be £2,000 or more. These can add significantly to the cost of borrowing – especially if you’re only borrowing a relatively modest amount. Make sure you compare the best buy to let mortgage rates on the market.
Getting a buy to let mortgage
The buy-to-let mortgage market is quite competitive, but lenders are still more cautious than they were before the credit crunch. Generally, they’ll expect borrowers to put down a deposit of at least 25 per cent of the purchase price of the property – and possibly 35 per cent on new-build homes, which are regarded as more risky investments. Our buy to let calculator will give you an idea of how much you will be able to borrow.
Lenders also expect you to be able to prove your income and to provide evidence that the market rate for rental income on the property you want to buy is at least 125 per cent of the mortgage repayments.
An adviser will help you resolve these issues. You will also need to research the market carefully in order to find the best place to invest.