Buy to Let Mortgages

Buy to let mortgages allow property owners to use a house as a source of income. These investment strategies have become more popular as consumers recognise the financial potential of such arrangements. With buy to let mortgages, you buy a building to let out to tenants. Rather than living in the house, yourself, you collect a monthly rent that pays off your loan, with an additional percentage that you keep as the landlord.

If you are considering buy to let mortgages, it's worth your while to learn about the benefits and drawbacks of these loans. Unlike conventional mortgages, buy to let contracts have less competitive mortgage interest rates and may require a home deposit of 15 to 20 percent. You must also be keen to play the role of landlord when you let the property, collecting rent and maintaining the building on your tenants' behalf. Buy to let mortgages may offer considerable financial advantages to property owners who are seeking a way to expand their investment portfolio.

Mortgages as Investments

Buy to let properties provide income to their owners as well as a stable financial asset. Property owners who buy a building to let do not intend to live in the dwelling. When you approach a house as a rental, you must evaluate the property from the perspective of an investor rather than a homeowner. Would the house and its location appeal to renters in your area? What is the home's earning potential? Would the grounds and structure be easy to maintain?

Mortgage lenders also evaluate the property from an investor's point of view, assessing its rental value and its rentability as they consider whether to offer you a loan. If a house does not seem desirable to the local community, or it has an inconvenient location, your lender may consider the house a financial risk. In anticipation of a reliable income and a means to pay off their mortgages, buyers should look for properties that might draw stable tenants who would live in the home for years to come.

Once you buy the home, the building and grounds must be kept up so that the home retains its investment value. In addition to keeping your tenants happy, you must keep your financial asset in good shape. Your lender will require you to buy building insurance to protect the structure from common hazards, such as fire, floods, ice, wind, water escape from broken pipes and vandalism. Your insurance will cover the fixed structures, such as walls and floors. Your tenants must purchase contents insurance to protect their movable belongings.

Rates and Taxes

Interest rates for buy to let mortgages are not as competitive as rates for traditional mortgages. Buyers seeking a home often have a choice of bonuses and deals as lenders compete to offer them an affordable interest rate. A home buyer may be offered incentives such as a discount on rates during the first few years of the loan, a capped rate or a fixed interest rate. Buy to let mortgages may offer affordable terms, but buyers must often shop around to find them.

In general, buyers must also pay a higher deposit for buy to let mortgages, sometimes up to 20 percent or greater. As with other properties, taking out mortgages for rental properties requires careful consideration of your financial resources and the use of a mortgage calculator to estimate your repayments over the years of your contract. To avoid taking out a higher loan than you can afford to repay, consider the rates and repayment schedules of buy to let mortgages carefully.

When you let the residence, you can generally expect to charge 125 percent of the mortgage repayment each month. The additional percentage will serve as a salary and will be taxed at 22 percent, possibly as high as 40 percent. On a more positive note, you may deduct the interest on your mortgage as well as the cost of maintenance from your taxes. Because of these tax incentives, and the potential of these properties to provide income, these arrangements have become very popular.

Restrictions

Buying a residential building with a conventional mortgage and then using the dwelling as a rental may be tempting, because you can get better interest rates. However, this use of the dwelling would violate the terms of your contract. A lender would have the right to withdraw financing if the bank or credit union discovered that you were letting the building to tenants rather than residing there.

Buy to let mortgages offer a number of attractive financial advantages to potential investors. If you're in the market for investment mortgages, shop for the best rates by comparing quotes from lenders in your area. Look for trusted lenders who are willing to offer you a good deal on this important acquisition.