Buy to Let Mortgage Guide

Buy to let mortgages are designed for those wanting a mortgage for the purpose of letting the property out to tenants.

These mortgages have become increasingly popular over the past few years, driven by increasing house prices, a strong demand for rental properties and a drop in the interest rates available to private landlords. A wide range of buy to let mortgages are now available, including fixed rate, discount, tracker and variable rates.

Buy to let mortgages differ to residential mortgages in three main ways:

• Rent Potential - the decision as to whether or not a mortgage will be offered is usually based on the rent you will earn as well as your income. In some cases your income is not considered.
• Interest Rate - buy to let mortgages have slightly higher interest rates.
• Larger Deposit - typically a minimum of 20% or 25% of the property's value is required as a deposit.

Becoming a private landlord should not be seen as an easy way of making money. It is riskier, more complicated and more time consuming than most other forms of investment and there is no guarantee that house prices will continue to rise. That said, letting a second property to tenants can reap considerable financial rewards over time.

When buying a property to let you will need to decide whether your primary objective is income or capital growth. In other words, are you looking to make a profit month on month or are you looking to make a profit through increased equity in the property as it increases in value over time. The decision may affect the type of property you purchase, and the location. For example, a prime city centre location may be more suited to high growth.

When you manage a property there are many costs involved in addition to the monthly mortgage repayments. As a guide, you should be aiming to achieve a gross rent of about 130% of the rental property's mortgage repayments (interest only) in order to cover your costs.

The additional costs include:

• letting agency fees - letting agents charge around 10% of the monthly rent for finding and vetting tenants and an additional cost of around 5% if you require a full management service.
• ground rent / service charges - applicable to leasehold properties.
• property's upkeep - maintenance costs for the property.
• gas / electrical appliances - cost of maintaining appliances and ensuring they comply with any regulations.
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