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Buy-to-let mortgages allow you to borrow money to buy properties to rent out. Although the buy-to-let mortgage market has shrunk over recent years, they are still available and can be a good investment.
Compare most popular buy-to-let mortgages
| Company | Loan to Value | Initial Rate | APR | Period | Fee | |
|---|---|---|---|---|---|---|
 (Tracker) | 75% | BoE Base Rate +3.39% | 4.7% | 24 Months | £1,999 application fee | Proceed Or call 0800 068 8483 |
| (Tracker) | 75% | BoE Base Rate +3.75% | 4.7% | 24 Months | £999 product fee | Proceed Or call 0800 068 8483 |
 | 65% | BoE Base Rate +3.49% | 4.3% | Lifetime | HSBC Premier customers only, £1499 booking fee | Call direct 0800 077 4278 |
| 65% | 5.49% | 5.99% | 60 Months | HSBC Premier customers only, £1499 booking fee | Call direct 0800 077 4278 |
| (Fixed) | 75% | 4.39% | 4.8% | 24 Months | £1999 product fee | Proceed Or call 0800 068 8483 |
What are buy-to-let mortgages?
Buy-to-let mortgages let landlords borrow money specifically to buy a property to rent out.
They work just like a normal mortgage, but lenders take the potential rental income into account when deciding how much money they are happy to lend.
How do buy-to-let mortgages work?
Your questions on buy-to-let answered. Image by blech​ via Flickr
Unlike a standard mortgage, with a buy-to-let-mortgage, lenders take your income into account as well as a percentage of the rental income you will get from letting the property.
Buy-to-let mortgages tend to be on an interest-only basis, which means that repayments will not go towards repaying the loan and at the end of the buy-to-let mortgage, it is the cash from the sale of the property that covers the outstanding amount.
Buy-to-let mortgages are available as fixed, discounted and tracker deals and arrangement fees are normally around 1.5% to 2% of the mortgage.
You will need a larger deposit for a buy-to-let mortgage than a standard mortgage, due to the higher risk involved.
Has the global economic crisis had an impact on buy-to-let mortgages?
Yes. As a result of the global credit crisis there is less money available for borrowers and there are fewer buy-to-let mortgages on offer.
Interest rates are higher, larger deposits are required and lending criteria have been tightened up.
Nine top tips for buy-to-let mortgages
- Be careful - buy-to-let mortgages are risky; make sure you’ve done your sums and you know what you’re letting yourself in for.
- Think about the rental market – don’t buy a property that you like, buy a property that the kind of tenant you want to attract will actually want to rent.
- Location, location, location – the old property cliche. However, choosing the right location will make or break a buy-to-let deal. Do your research and find out what the rental market’s really like in the area you’re looking at.
- Account for maintenance – you need to make sure you can cover all the costs of maintaining the property. Buying somewhere run-down or with a big garden will increase those maintenance costs.
- Remember the tax – remember you will have to pay tax on gains in the value of the property when you sell it, but expenses like agent fees and interest costs can be offset against rental income.
- Don’t forget letting agent fees – if you use an agent, they will charge 15-20% of the rental income to manage your rental properties.
- Time is money – if you’re not going to use a letting agent, take how much of your time it will occupy into consideration. Maintenance, viewings, posting ads, collecting payments etc all take time.
- Think long-term – buy-to-let probably isn’t a good short-term investment, you may have to be patient and wait a number of years before you start to see returns.
- Shop around for a mortgage – the mortgage interest rate you get is vital. Shop around, get plenty of quotes and make sure you’re getting a competitive rate.
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