Buy to Let Mortgage

A buy to let mortgage can fulfill two goals at once: purchasing a house and taking on a new investment scheme that supplements your income. With a buy to let mortgage, you buy a home with the intent of letting the property to tenants. Buy to let schemes are becoming more popular as investors recognise their financial potential and tax benefits.

Financing a buy to let house is similar to financing a conventional residential mortgage, with a few key differences. Compare quotes from banks and building societies to find the best deals on these versatile investments. The more you learn about your mortgage options before you make a commitment, the better equipped you'll be to repay your loan and enjoy the benefits of buy to let mortgages.

Buy to Let Mortgage Rates

Mortgage rates determine, in large part, how much you'll eventually pay for a property. The majority of the residential mortgages in the UK are variable loans, whose rates may vary according to the SVR, or Standard Variable Rate. The SVR is based on the Bank of England's guidelines for all monetary policy. Within certain margins, generally 1 or 2 percent, a lender may adjust the SVR over the course of your mortgage. Before you purchase a home, it's important to use a mortgage calculator to determine whether you'll be able to afford the repayments at the proposed rates and locate the top mortgage deals available.

A repayment calculator can be a valuable tool when you're considering investment mortgages. If you purchase a house and are unable to rent the dwelling due to a downturn in the rental market, you may end up making the repayments out of pocket. Consider this possibility as you're evaluating properties and assessing the rental population in your community. Even if the market for rental homes is currently high, changes in the economy could reverse the situation in the future.

When you shop for a buy to let mortgage, you may notice that interest rates for buy to let mortgages are not as competitive as rates for traditional mortgages. Although it's still possible to get deals on buy to let properties, you may not benefit from the wide range of fixed, discount or capped rate mortgages offered to consumers who are applying for conventional loans. Through clever comparison shopping, however, you can find an affordable rate and repayment terms that suit your needs.

In addition to paying a higher rate for a buy to let mortgage, you may be required to make a higher home deposit. The deposit required by lenders for conventional loans is typically 5 to 10 percent of the property's value. By comparison, the deposit for a buy to let mortgage may be as high as 15 to 20 percent or more. However, you can't circumvent these requirements by taking out a traditional residential loan and letting the property to tenants. Under those circumstances, your lender would have the right to withdraw financing.

Benefits of Investment Mortgages

Investment mortgages have opened up new financial opportunities for average consumers in the UK. With more consumers become savvy about real estate investment, lenders are taking their needs into account when helping them secure financing. A lender will assess the rental value and rentability of a property to determine whether the house is a sound investment. This step may save investors a considerable amount of time and money, as lenders are often quite familiar with the rental market.

Once you've secured a buy to let mortgage and have let out your house to tenants, you may anticipate receiving up to 125 percent of the mortgage repayment from your tenants each month. Out of that amount, you can pay off your loan, pay taxes and put aside a percentage of the income for yourself. After the house is paid off, you can keep the entire amount of the monthly rent as income, minus your taxes.

When you rent out an investment property, your income is typically taxed at a fairly high rate. Taxes on this income, which is considered a salary, may range from 22 percent to 40 percent. However, as the landlord of the property, you can deduct maintenance expenses and the interest portion of your buy to let mortgage from your taxes. These benefits make real estate investment schemes desirable to investors who are seeking ways to reduce their taxes.

Investment mortgages offer a number of advantages to new investors and seasoned investors alike. In addition to the tax benefits they provide, a buy to let mortgage can provide a supplemental source of income in retirement, augmenting the funds you'll receive from your pension and ISA. Take advantage of the free resources on our site to explore your residential and investment financing options, then use our request form to gather quotes from our network of trusted lenders.