Buy To Let

A term used to describe a property that has been purchased by a landlord with the intention to let it out to paying tenants. A ‘buy-to-let’ mortgage is the loan given to a landlord with the express permission of the lender that the property can be let out. A buy-to-let mortgage often costs around 1% more than a standard mortgage. Traditionally buy-to-let lenders want rent to cover 125% of the mortgage repayments, although many have relaxed this in recent years, despite this they will stll be looking for suitable assurance that the payments will be met. Often a large deposit will be required in case of sudden fluctuations in the housing markets.

This popularity of buy to let mortgages has grown in recent years as many people use it as an investment tool using the balance above the repayment amount as a means of generating income. Often people will have portfolios consisting of numerous properties. Obviously this is not without risk as a buy to let mortgage carries the same potential problems as a normal mortgage and more. As they are often more expensive mortgagees are more susceptible to fluctuations in the market such interest rate rises and house price changes. For example in an economic downturn there can be less demand for rental property or a drop on rent prices which will squeeze profits. Also they are responsible for the maintenance of the property and the costs that this incurs which can reduce income. However with careful planning and shopping around they can be a very affective and profitable investment.

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