Buy to Let Mortgages

Buying-to-let is an increasingly popular form of investment, for many, property investment is an alternative to (or adjunct to) a pension, whilst for others the relative safety of investing in bricks and mortar is more appealing than putting their money into the stock market.

A buy-to-let mortgage is very similar to a residential mortgage, in that you can have repayment or interest-only deals, different terms, and different methods of calculating the interest on the loan. However, the main difference is in the way the lender calculates how much you can borrow. Rather than basing it on income multiples or affordability, the size of the loan will often be calculated from the potential rental income of the property you wish to purchase. And you will usually have to find a bigger deposit, you will be unlikely to be able to borrow more than 85 per cent of the value of the house.

An alternative to a buy-to-let mortgage is to re-mortgage your main residence and then buy the investment property for cash, you should be able to get a better interest rate, but of course this is only an option if you have sufficient equity in your main residence.

Many investors buy a property at a low price and after renovation have the property revalued and then re-mortgage on a buy-to-let basis at the new higher value, this releases funds to buy yet another property and the investor then repeats the cycle. Using this strategy it is possible to build up a substantial portfolio of property. Remember though, that you may not have a property full of rent-paying tenants all year round so it would be prudent to ensure that you have a good margin between your rental income and interest payments.

If you are a first time investor it would be a good idea to buy just one property initially and see how it works, property investment is not always as easy as it looks. Also, consider using a managing agent to deal with the day-to-day running of the property it could prevent a lot of tenant trouble and work out cheaper in the long term.

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