The housing market is always in demand. This is true for large congested cities where home ownership may not be an option for most people. In addition to this, there is a big requirement for flats and apartments for rent in commercial areas. Real estate companies aim to tap this market by offering properties for rent. If there is no capital to build, companies look to banks for buy to let mortgage. Since this type of mortgage is considered a business loan, borrowers should expect that interest rates are higher than residential mortgages. Obviously, you’ll be required to put down a bigger deposit because the value of the property is also considerably higher.
Properties that are mortgaged through buy to let loans are meant to generate enough income to pay the loan amount. This means that a property owner should be able to manage the property well in order to make sure that there are enough tenants to garner sufficient income. Maintenance is also another factor that adds to the burden of a property owner. These risks have to be carefully considered before a property owner looks into the option of getting a buy to let mortgage.
How do you get Approved for a Buy to Let Loan?
The mortgage lender will look into the ability of the property owner to get enough rental income to pay the interest on the loan. This is done through an RTI calculation. RTI or rate to interest calculation varies from lender to lender but the general rule is that the income for the property should be at least 25 to 30 percent more than the value of the property itself.
Some may think that selling the property upon the maturity of the loan is a sound option to pay off a loan. In some ways this can be true but once again another possible risky decision. Nevertheless, this depends on the kind of investment strategy used by the borrower. A borrower’s property portfolio will impact the decision on whether to repay the loan or choose an interest only mortgage instead.
Big real estate companies with a big portfolio will most likely have no problem with either these choices. But a newcomer in the rental business should not take any uncalculated risks that will end up causing financial burdens in the end.
Planning for Difficult Times
A property investor may feel extremely confident about a buy to let mortgage if the property is located in an area with high demand for flats and apartments. These areas are always close to business districts and academic communities. If you can expect that young professionals and students will look for a rental flat in the area, you are likely to expect a steady rental income. But there may be times when there are not enough tenants to generate the needed income to repay your loan. As such, a property owner should always prepare a back-up to avoid getting further into debt.
Get a Broker
The process of applying for a buy to let mortgage requires that you go through a broker. An independent broker is your best option so that you only get an objective comparison of loans available to you. You need to have impartial information to be able to find the best mortgage suitable to your situation. Mortgage consultants with a wide network of lenders should also be able to help you navigate and overcome all the intricacies involved in the loan approval process.