Buy to Let Mortgages

It’s more than 15 years since the first “Buy to Let” mortgages became available and opened up a new opportunity to thousands of investors.  Many of the early birds have seen tremendous gains in property value and gone on to build significant portfolios.

On the other hand, some overambitious types stretched too far and ended up losing the lot.

This coupled with property prices falling in recent years and mortgage finance difficult to find has led some to believe that the days of the property investor are over.  Personally I believe that there is never a bad time to invest in property as long as you get the sums right.

So what are Buy to Let (BTL) Mortgages?

Basically this is a mortgage specially for buying a property where the intention is to rent it out long term.  It is expected that the rental income will cover the mortgage payments plus a bit extra for repairs and insurance etc.  In order to make this possible, you normally have to put in a fairly hefty deposit - making the mortgage payments smaller and a bit more manageable.

Where you have a standard domestic mortgage and want to rent out your own home, you will require consent from your mortgage lender.  Without this you may technically be in breach of your mortgage terms and conditions. If the mortgage lender finds out they could repossess the property.  Not only this, but if the tenant is evicted they could sue the landlord for damages. Best to do it properly then!
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How much can you borrow?

Each mortgage company has its own set of requirements.  Currently the rules are quite strict and you will have to prove your income & affordability, put down a large deposit of up to 40% of the property value or purchase price (whatever is lowest) and have the rental income covering the mortgage payments plus about 25%. 

Some of the rates on offer are quite high which I suspect will put people off buying. There are trackers and some fixed rates with high fees so do your sums carefully.

 This is quite different to pre-credit crunch days where many lenders relaxed their lending rules to a point where you could borrow what you wanted as long as you could spell your name correctly!  Well OK not quite that bad, but so called Self Certification Buy To Let mortgages allowed people to borrow silly amounts of money with little restriction.
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Is the Buy to Let market dead?

In my opinion No, there may be a lot of opportunity for long term landlords to reap rewards.  Ok property prices are still relatively quite high and mortgage lending is currently restricted, but the signs are that the lending is being relaxed with companies returning to the BTL market. Interest rates are historically low, house prices have fallen on average about 20% in the last two years and sadly repossessions are on the increase.   Landlords however may consider this to be an opportunity to take advantage and snap up properties on the cheap.

Consider also that house building is at the lowest level since World War II, the population is growing and people are living longer.  The housing requirements have to be met in some way, either by more affordable housing to buy or a shift towards long term rental like our european cousins.  My money is on rentals.

Robin Burnage CRLM FARLA DEA

June 2010

 

Robin Burnage has been a successful portfolio landlord for nearly fifteen years and a Letting Agent since June 2002.  He holds an advanced qualification – Certificate in Residential Letting and Property Management – and in recognition of his dedication is a Fellow of the Association of Residential Letting Agents (FARLA).  Outside of work he enjoys motorcycling and sailing for which he is an RYA Qualified Yachtmaster.

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