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Buy to let mortgages

Here are some of the main issues you need to think about before you apply for a buy-to-let mortgage.

What state is the market in?

To make the most of a buy-to-let investment, you need to have a thorough understanding of the state of the housing market.

Research what is happening to rents now, and what experts think is likely to happen over the next few years.

For example, if the lettings market is very slow, you may not be able to make enough rent to cover your total monthly mortgage amount.

One way to test it out is to pose as someone looking for a property to rent. Estate agents often say quite different things about the state of the market to those looking to rent as opposed to those looking for an investment property.

Which area should I choose?

It doesn't necessarily make financial sense to go for a property local to where you live (unless you're intending to manage it yourself. Getting calls from tenants in the middle of the night when they're miles away is no fun).

If you're going to let an agent handle everything for you, you can spread your search area. Think about whether an area has a 'draw' which might make it particularly attractive to tenants. For example:

Is it part of the commuter belt?
Are there good transport links?
Are there good schools or universities nearby?
Is it a safe area for families with young children?
Does it have good local shops and other amenities?

It all depends on the type of property you're looking for. If you're buying a one-bedroom flat, good transport links will be high on the list of priorities for potential renters.

However, if you're going for a family home then good schools and amenities are important. And for student lets, you need to be near the university.

What sort of tenant do I want?

The type of property you buy should be closely related to the sort of tenants you'd prefer. For example:

If you're hoping to attract a young family, the property should ideally have a safe, enclosed garden.
A group of students is likely to be looking for somewhere clean and affordable, rather than luxurious.
Single, professional men may value high-spec, modern extras - like a large flat-screen television or a great power shower.

Of course, to some extent these are stereotypes - but they illustrate how closely property choice and tenant choice are linked.

What's the worst-case scenario?

Before you apply for a buy-to-let mortgage, you need to sit down and work out a realistic, comprehensive estimate of all the figures and costs involved.

This should give you a clearer idea of how much you'll be able to borrow, and whether you'll be able to overcome the financial risks involved.

Here are some of the main points to consider:

What are similar houses in the area being rented out for, and is this what you expect to earn in rent?

What percentage deposit will you be able to provide? Check out our mortgage tables under 'buy-to-let' to see what size deposit lenders require.

Have you put extra funds aside to cover additional costs - for example, mortgage arrangement fees, legal fees, survey fees, stamp duty, buildings and contents insurance and maintenance costs?

Will you be able to cope financially if the property isn't rented out straight away, or if there is a gap between tenants?

If you're considering a variable rate mortgage deal, would you be able to cope if interest rates rose?

How much help do you need?

Finally, think about how much of the buy-to-let process you're happy to deal with yourself.

Taking care of things personally may help you avoid certain handling and management fees. However, it can be a complicated, time-consuming and sometimes stressful business.

Consider which of the following you'd like to do yourself, and which you'd rather hand over to an estate agent or managing agency:

Finding tenants;
Checking their references;
Producing a tenancy agreement;
Maintaining the property (internal and external) and carrying out any repairs;
Collecting the rent.

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Your mortgage

Purpose of mortgage: * Help

Purpose of Mortgage

A first time buyer is a buyer who has never purchased a property before and generally has previously lived with relatives or friends or occupied rented property

House purchase is when an applicant, who has been a previous purchaser/occupier, is intending to purchase a different property for owner-occupation

A remortgage occurs when an applicant wishes to switch a mortgage loan from one lender to another without moving properties. The existing loan is repaid by a loan from the new lender. Depending on the amount of equity, this could also be a means of raising additional funds.

A buy to let mortgage is for when a property is bought as an investment and rented out to a tenant who pays a rental income.

A right to buy mortgage is only available to council tenants or certain types of tenants where the landlord has received a subsidy from the Local Authority. The tenant must also fit certain eligibility criteria related to the type of property and the length of time they have lived there. The amount of discount depends on how long the tenant has lived in the property and is also calculated taking into account any improvements carried out at the tenants own expense.

A self build mortgage is taken out on a property that is either still to be built or still under construction. Typically, the lender will only pay out the loan in stages, corresponding to the completion of various stages in the construction. There are generally six stages to a build where your mortgage company will release funds to allow the project to continue. They are:

Stage 1 - purchase of the land or property;

Stage 2 - preliminary costs and foundations or preliminary costs and structural overhaul;

Stage 3 - main structure erected;

Stage 4 - making the property wind and watertight;

Stage 5 - first fix and plastering;

Stage 6 - second fix through to completion

This is a specialised mortgage product designed for people over the age of 55 , which allows them to release the some of the equity they have built up in the home; this could be through owning the property outright, or from the value of the home increasing over time.

The householder retains ownership of the house whilst being able to use the equity to boost their income. There are several products on the market, some of which you only pay the interest back during your lifetime, and others where you pay nothing back during your lifetime and the repayment is taken out of the estate on death. For this reason, it should be noted that the applicant should be aware that they will be asked if they have discussed with their family members the reasons for applying for equity release.

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Lender	Initial Rate	Duration	Standard Rate	Overall Cost For Comparison	Max Loan To Value	Fee
Lender	Initial Rate	Duration	Standard Rate	Overall Cost For Comparison	Max Loan To Value	Fee	2.89%	To Sep 2013	4.99%	5.3% APR	60%	2.5% + £0

	3.19%	To Nov 2013	4.79%	5% APR	60%	2.5% + £0

	3.24%	2 years	4.95%	5% APR	60%	£1240

	3.49%	To Nov 2013	4.99%	5.3% APR	65%	2.5% + £0

	3.54%	2 years	5.64%	5.6% APR	65%	£995

	3.59%	To Sep 2013	4.99%	5% APR	60%	£999

	3.79%	To Sep 2013	4.74%	4.8% APR	65%	£1249

	3.85%	Term	5.49%	4.3% APR	70%	£895

	3.99%	2 years	5.99%	6.1% APR	70%	£999