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Investing in Buy to Let Properties
Mortgages

Buy-to-let properties are hugely popular in the United Kingdom. Over the past few years while property prices have been on a steady increase, the idea of having an investment property and letting it out so that your tenants repay your mortgage, has been a very appealing way of investing.

Buy to let properties provides either income, capital growth or both depending on several factors. Like all property investments, the price at which the property is bought is crucial in the overall return and performance of the investment. Similarly the amount of rental income received is essential in the process of calculation return on investment and the efficiency of the particular property.

Buying a buy-to-let property is very similar to buying a residential property with a few minor but important differences. These differences are:

Rental yield: This term refers to the percentage rental income a property generates before expenses in relation to the purchase price or current market value. As an example: If a property generates a rental income of £12,000 per annum and the market price is £200,000 the rental yield is 6%. £12,000 divided by £200,000 = 6%. Rental yield of between 5% and 7% is average. Anything below will require an increased deposit to satisfy the lender requirements and anything above this is exceptional and will be a very good investment.

The amount of rental income that will be received for the property plays an important role in securing a mortgage for a buy to let property and how much deposit will be required from a bank. Banks have different criteria to obtain buy to let mortgages but most would require that the monthly rental income exceeds the mortgage repayments. The level at which the rental needs to exceed the monthly mortgage payments can vary between 10o% and 125% of the mortgage payment.

As an example: if your property has a monthly mortgage payment of £1000, the rental income on that property will have to be up to £1250 before some lenders will be willing to lend on the property. For this reason it essential that you do thorough calculations before you consider purchasing any property as an investment. When the mortgage application is submitted and the valuation is instructed by the bank, the surveyor will give an estimate of what the rental income will be and this will normally be the amount that is used by the lender for it calculations. You must thus make sure that the rental income figures quoted to you by the estate agents when enquiring on the property is very realistic. If possible get comparisons on similar properties already let out in the same area buy agents.

There is no maximum amount of buy-to-let properties that any person can have but specific lenders have restrictions on the number of properties they will allow one investor; this is to manage the risk attributed to that investor.

Owning your own property before you start down the buy to let route will allow you access to more lenders and thus greater choice in mortgage products. Lenders see a successful track record of owning your own property as beneficial experience and hence lower risk.

They buy to let mortgage process work much the same as the normal mortgage process. Please read our section on the mortgage process for more information.