Buy-to-let mortgages are a good way to get into the property investment market and can be a good way of generating income if managed correctly.
What should I consider?
Buy-to-let mortgages are available to most people provided you meet some initial criteria e.g. annual income, deposit, age, etc. There are a few things will you want to take into consideration before deciding to go ahead.
You will need to find out how the rental income compares to the finance charges. Most buy-to-let mortgages are available on a 75-80% LTV ratio so you will need to compare this against the rental income you expect to achieve. Most lenders expect the rental income to be 25-30% higher than the mortgage payment. The other thing to consider is to put forward a larger deposit (up to 40%) to get a lower LTV ratio.
Who can I borrow from?
There are different categories of lenders available for buy-to-let mortgages. The most familiar and traditional option is high street banks which are classed as ‘Tier 1’ lenders. A new category of banks has arisen to fill the gap where traditional high street banks say no, and these challenger banks are known as ‘Tier 2’ lenders. Lastly, there are ‘Tier 3’ lenders who deal with the more unusual property or where circumstances do not meet a conventional lender criteria.
If you have been rejected by high street banks J & J Commercial Finance are able to use their network of over 300 lenders to access finance packages from the Tier 2 and Tier 3 lenders to finance your buy-to-let mortgage.
What will lenders be looking for?
Most reputable lenders do what is called a ‘stress-test’ to find out how the finance package they are offering you will be repaid in the event of problems. For this they will compare the rental income against the finance repayment to check if it is viable if anything unexpected does happen.
For buy-to-let mortgages there can be periods where the house is unoccupied and no rental income is gained. They will also take into consideration there may be major repairs needed at some point during the mortgage period. Finally, fluctuations in the housing market will need to be considered by lenders.
What are the regulations?
Most buy-to-let mortgages are not regulated by the Financial Conduct Authority. However, there are exceptions; if you already have a mortgage on a house and want to convert to a buy-to-let or if you are buying a property to let to a close family member. These are classed as ‘Consumer buy-to-let’ mortgages so they are regulated by the Financial Conduct Authority. Consumer buy-to-let mortgages fall under the same strict affordability rules as residential mortgages.
J & J Commercial Finance have access to over 300 lenders and can offer free impartial advice with no obligation. To find out more or to call us to talk about borrowing finance give us a call on 07399 660 002 or send us a message. To find out more about us and what services we provide financial consultancy for head to our website.