Picture it now: an asset that continues to increase in value as you receive a regular additional concrete sum of money to sit back and enjoy. Sounds too good to be true, doesn’t it? Let us enter the world of buy-to-let mortgages — where your property investment will meet gainful return.
Buy-to-Let Mortgage – What Is It?
Explainable as a loan designed to buy a property for renting out only, buy-to-let mortgages are different in their criteria than residential home loans as they include possible rental revenues taken into consideration while the loan application is being processed.
How Do Buy-to-Let Mortgages Differ from Residential Mortgages?
The difference is in what they fund: Residential mortgages finance houses, while a buy-to-let mortgage’s object is a house intended to be let to tenants rather than lived in by the owner.
They tend to demand a higher deposit — often a minimum of 25{e6a1e97ec1a15155ca0ed8c3e87721e561c99ed6e52274045963a20278fc2089} — and to allow (demand, sometimes) a higher loan amount useful the cash flows will demand higher repayments reflecting the underlying risk for the lender.
Benefits of Buy-to-Let Mortgages
You’ll hopefully find rental investment to be very profitable for the following reasons:
Income Generation: The monthly rental payments can provide a stable income.
Capital growth: Over the long term — house prices go up, so the value of what you own will increase too, meaning you get more money (the return) than you paid for it.
Key Considerations for Buy-to-Let Mortgages
When delving into buy-to-let mortgages, several factors need careful thought:
Deposit Requirements
Be prepared to put down a hefty deposit. While 25{e6a1e97ec1a15155ca0ed8c3e87721e561c99ed6e52274045963a20278fc2089} is pretty standard, some lenders may ask for as much as 40{e6a1e97ec1a15155ca0ed8c3e87721e561c99ed6e52274045963a20278fc2089}. An even bigger deposit will often get you a better interest rate, saving you money on the loan over its lifetime.
Tax Implications
Tax implications of buy-to-let can be hard to understand. Interest repayments, property costs, management fees, and more are deductible. But there have also been rule changes for mortgage interest tax relief which can impact financial performance, so contact a buy-to-let-mortgage advisor for more help.
Interest Rates
Buy-to-let mortgages have higher interest rates than owner-occupied deals. You either get a fixed rate for a set number of years or a variable rate that can be cheaper at the outset but can go up or down.
Rental Yield Calculations
Understanding rental yield is an absolute must. If you want to work this out divide your annual rental income by your property’s value, multiply this by 100, and you’ll get your percentage! We would consider somewhere around 7{e6a1e97ec1a15155ca0ed8c3e87721e561c99ed6e52274045963a20278fc2089} to be acceptable, but this does depend on your location.
There is so much fuss surrounding buy-to-let mortgages, but it can be a clever way to save or invest. Every month, you get the rent in, and your assets grow at a faster rate. If you have the confidence to make a good investment, then let your money work for you. And get what you have always dreamed of.
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