Buy To Let Mortgages

Funding a Buy to Let Investment: Mortgage Types

Having decided to get involved in the buy to let market, the first thing that needs to be considered is how this project is likely to be financed. Fortunately, there are a wide number of options available which allow potential investors a wealth of opportunities when it comes to financing the project.

Buy to Let Mortgages
Beyond a shadow of a doubt, the vast majority of buy to let investors will use a specialist form of buy to let mortgage in order to purchase their property. A buy to let mortgage has different requirements and restrictions compared with a standard residential mortgage. In addition, the rates offered are generally not as competitive as those mortgages that are used specifically for residential mortgages. Do not be tempted to use a residential mortgage. If you then let the property you are, in effect, breaking the terms of the mortgage and the lender may withdraw their financing.

Buy to Let Mortgage Restrictions
Of course, with such a wide range of mortgages available, it may be possible to buck even the most engrained of trends. However, as a general rule, a larger deposit will be required than for a traditional residential mortgage. A deposit of around 15 to 20 percent is normally required and it will be necessary to prove to the mortgage lender that the rent will cover in the region of 125 percent of the mortgage payments. Some companies will offer mortgages with a lesser deposit or with lesser coverage. But, in order to give yourself the widest range of choices when it comes to mortgage providers, it pays to be able to meet the basic credentials.

Some mortgage providers will offer services especially tailored for investors who have growing portfolios. Many providers will only finance lending for up to 5 properties, whereas others will allow any number of properties, but will place a maximum total value on the portfolio. When you are starting out as a property investor, it can be difficult to consider your future needs. Nevertheless, paying attention to your requirements at this early stage can mean that you have a flexible financing structure in place from the very start.

Alternative Financing
As well as buy to let mortgages, many investors will consider joining a property syndicate, whereby they are only required to invest a small amount of cash. By joining forces with other investors it may not be necessary to borrow any cash at all. Other alternatives include re-mortgaging the family home, although this is considered hugely risky, as it can lead to the loss of the family home if the repayments are not made. Also, short-term financing with loans and credit cards, which is generally a costly option but does allow for a quick release of cash, needs to be approached with great caution.

Summary
Buy to let mortgages are the most popular of choices for buy to let investors;
there is currently a vast range of mortgages on the market, each offering a slightly different service and restrictions; and
alternative financing options exist, although these are not without their risks and should be considered carefully.