Buy to let loans refer either to the investment strategy of buying a residential property to be let for profit; or to a particular category of mortgage used to purchase a property for letting. Since the beginning of the new millennium, there has been rapid growth in the property market leading to a surge in demand for rental property which is being exploited by many mortgage providers keen to encourage new amateur landlords.
How much you can borrow depends on the lender, but the maximum ranges from GBP150,000 to GBP1m per property, and the most lenders will lend has traditionally been 85% of the property price. This means you need a deposit of at least 15% and deals become more competitive if you can put down 20% or 25%. A lender will also take into account how much money you earn on the property.
As for all property rentals, the benefits for a buy-to-let landlord can include a stable income from rental receipts, as well as an accumulation of wealth if house prices go up over time. Rising house prices all over the world had made buy-to-let a popular way to invest. However, the trend has gone down recently due to the financial crunch.
The main risk with regard to the loan is that the property might not be occupied for all 365 days of the year, while the owner still has to pay a monthly mortgage payment. Also, buy-to-let landlords would suffer along with all property owners should prices fall.
However, the loan allows a borrower to raise funds in order to purchase a property not to live but to rent it out to someone else. It may involve no costs as the rent amount they get by letting it out can cover the loan on the property. He can also have an asset to use in the future and build up an asset without actually spending any money.
Yields can be as high as 10% with the added bonus of potential strong capital growth. Its a great investment to make for those who are already home owners, which allows them to buy a second home and place it on rent.
The main difference with a buy-to-let mortgage is that the lender can take account of the rent you will earn, as well as your income from your job. Some lenders allow you to add the rent to your salary while others base the loan entirely on rent. Any mortgage you have on your own home will cut the amount you can borrow under the buy-to-let scheme.
These loans can be a profitable alternative to any other investment strategies. It can even complement other investment options such as funds, equities, shares and other saving options. Its a right option for all those who get office accommodation. They can make use of buy-to-let loans and invest their money to purchase a property and let it out.
There is no direct tax relief on buy-to-let mortgages, but you can offset interest payments on your mortgage against tax on rental income, along with other expenses such as agents fees and maintenance costs. However, it is important that you always calculate what you can repay every month and how much the property would bring in as rent. Do all your ground work and some research before applying for a buy to let mortgage
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