Buy to let mortgages are for people who want a buy a property to rent out to tenants. As house prices continue to rise renting has become increasingly more attractive to families, as well as the more traditional tenants of students, singles and young couples. As in common with residential mortgages lenders will charge arrangement fees with the loan, but usually this can be added to the loan amount and therefore is not an upfront cost. Also fixed rate loans are available for potential landlords but as with other mortgages the longer the rate is fixed for the higher the rate of interest

How much can I borrow?

How much a person can borrow depends on the criteria of the individual lender. Lenders will base the loan size on rental income, the borrowers personal income or a combination of these. The lenders will typically advance a maximum of 85% of the purchase price, so the applicant would need to have a deposit for the other 15%.

What returns can I expect?

Typical returns to landlords vary between 4% to 6.5%. The days when landlords were making returns of between 10% and 14% have now passed due to rises in interest rates and falling rent levels

What are the tax implications?

For a lender to consider a loan viable the rental income must usually be between 120% to 130% of the mortgage payment. Landlords cannot get tax relief on rental income, but can offset the interest portion of their mortgage repayment against tax levied on the rent.

What are the potential problems?

If a landlord has unsuitable tenants who refuse to pay the rent eviction can be a lengthy process. This could mean that mortgage payments are not met and the lender could repossess the property. So it is essential that prospective tenant are thoroughly vetted, which can be organised through an ARLA registered letting agent (Association of Residential Letting Agents).