Buy To Let Mortgages in the UK

The buy to let market in the UK has become increasingly popular. The theory is simply. Buy a property with sufficient deposit to ensure that the rent from your letting covers the mortgage repayments, repairs on the property and any other outgoings like service charges. The interest part of your mortgage payments are tax free, as are a number of the expenses, so you shouldn't have to pay tax on much if any of the rental income.

People investing in Buy to Let in the UK generally follow one of three strategies

*Use a repayment mortgage or some other investment plan to pay off the mortgage in full over time. Then sell the property and realise the capital gain (you will be liable for capital gains tax)
*Use an interest only mortgage in the same way. At the end of the mortgage term, you sell the property and realise the capital gain, but obviously have to repay the mortgage itself from the money realised from the sale
*Use a repayment mortgage to pay off the mortgage by the time you are ready to retire and then use the rental income as part of your ongoing pension plans.

So, what's the catch? Well the buy to let market has become saturated. There is always a risk that you won't be able to let your property and will be left with the mortgage repayments and no rental income. And, to cover your repayments, you will need a sizeable deposit. Most mortgage lenders will not lend more than 75% of the value of a buy to let property...and they will expect the valuation survey to show that you can recover between 120% and 130% of the monthy interest payments through your rental income. Property prices are not rising so quickly...and could fall in the long term! So, if you are depending on a capital gain at the end of the mortgage, you may find that your investment, like any other has not been profitable. Finally, this is something that really does tie you in for the long term. You are unlikely to make much money if you sell too quickly, because you need to cover stamp duty, survey costs and legal costs for a start.

If you are still keen to invest in a buy to let property, then look around for property that will be easy to let and doesn't need a lot of ongoing maintenance. What works for you as an individual is not necessarily the right sort of property for the buy to let market. For example in London, having a garden is great if it is your own place, but with a buy to let property you will have to consider how to maintain the garden. Very few tenants will pay extra for a garden, although a roof terrace, patio or balcony are regarded favourably. Similarly, if you are looking at two or three bedroom flats and houses, make sure that they are all double bedrooms. Single bedrooms are hard to let to sharers and your lovely two bedroom flat with one double and one single is unlikely to realise much more than a similar one bedroom property.

When you are looking for a buy to let mortgage, remember that you are taking out an unregulated product, so be particularly careful about checking the small print. And, don't be suprised if your buy to let mortgage has a slightly higher rate than a standard mortgage product.