Buy to Let Mortgage Buyer’s Guide

Commercial Buy to Let Mortgage Guide

The Buy to Let Mortgage Guide

For many years, people have been investing in “bricks and mortar” with a view to letting out one or more properties as a business venture. This is commonly known as “buy-to-let” and involves not only the letting of residential properties but also commercial property such as shops and industrial units to tenants.

The property owner has the opportunity to not only achieve a significant capital appreciation in the value of the property but also generate a regular monthly income from the rental monies.

However, buying a property involves a considerable financial outlay so many people need to resort to borrowing funds towards completing the purchase. Such finance is typically arranged in the form of a buy-to-let mortgage.

So, let’s have a look at residential and commercial buy-to-let mortgages in a little more detail.

Commercial buy to let mortgages

Commercial Buy to Let MortgagesThere are a number of lenders including banks and building societies offering such finance so it is worth considering using a mortgage broker that has access to an extensive panel of such lenders.

What sort of commercial properties are suitable for buy-to-let?

There are numerous types including shops, offices, warehouses, hotels and restaurants to name but a few.

Who can arrange a commercial buy-to-let mortgage?

Various applicants including an individual, partnership, limited company, pension funds and trusts can arrange such a mortgage.

How much can you borrow?

This may vary between lenders but could be from £35,000 to many millions of pounds.

What term is available?

Again, this may vary but could be between 3 to 25 years.

What interest rates are available?

There are fixed and variable rates available with the later linked to the Bank of England base rate or LIBOR.

Is a deposit required?

Yes. This may vary but could be a minimum of 25%.

How do you repay the mortgage?

This may be on a capital and interest repayment basis but may also be available on an interest only basis.

How is your ability to service the mortgage assessed?

Your ability to service the debt from other income sources should usually be demonstrated without taking into consideration the rental income from the commercial property. This is because of the perceived greater risk of a commercial property remaining un-occupied for a longer period than a home.

Are there any fees payable?

Yes. There are arrangement, legal and valuation fees payable.

Residential buy-to-let mortgages

Residential Buy to Let MortgagesThere are a numerous lenders offering buy-to-let mortgages at very attractive rates of interest. Below, we highlight some of the important features that you may come across with them.

Who offer buy-to-let mortgages?

You will find that the major high street banks and building societies as well as a number of other financial institutions provide such finance. As they, potentially, offer different terms and conditions it could pay you to shop around for the best deal. Using a specialist mortgage broker could help you achieve this.

How much can you borrow?

This may vary from lender to lender but could range from a buy-to-let mortgage of £15,000 to £1 million plus on one property. Some lenders will consider several mortgage applications from one borrower over a period of time to build up a portfolio of a number of buy-to-let properties.

Over what term can you borrow the money?

Again, this can vary but could be from 3 to 35 years.

It is worth noting that a buy-to-let mortgage can often run for a term going beyond someone’s normal retirement age which is when a normal mortgage should usually be repaid by as the rental income could still continue to be received after retirement.

What interest rates are available?

Interest rates on buy-to-let mortgages are higher than for a mortgage to buy a property for owner-occupation. Lenders tend to provide a range of options including fixed, tracker or variable rates.

How do you repay the mortgage?

Most buy-to-let mortgages are set up on an interest only basis although can also be arranged on a capital and interest repayment basis. This keeps the monthly repayments at a lower level. A number of borrowers will clear an interest only mortgage using the sale proceeds of the rental property at the end of the mortgage term.

Is a deposit required?

Yes. This can vary between different lenders with the amount being sought having a bearing on the percentage. Typically it could range from 20% to 40%.

Are there any fees involved?

Yes, there is normally an arrangement fee payable that is higher than for a mortgage on an owner-occupied property. There are also valuation and legal fees.

What are the income assessment requirements?

This is something that may vary between lenders but typically the gross rental income should cover 125% of the monthly mortgage repayment. Some lenders may also expect you to have other earned income of at least £25,000.

We trust that you have found the above Buy-to-Let Mortgages – Buyer’s Guide useful and look forward to assisting you in arranging suitable finance.