With the substantial increase in property values in the UK, buy to let mortgages and properties have become increasingly popular as investment vehicles. Buy-to-let mortgage means taking out a mortgage on a property that is not your primary residence, but will be used to let out to tenants.
With average returns on buy-to-let homes often exceeding 10%, these investments can reward home owners or investors with fairly high returns, for a relatively low risk investment. Compared to investing in the stock market, as long as you don’t default on your mortgage repayments, you cannot lose the underlying principal investment in the property.
Another driving factor has been better legal protection for landlords in the UK, which has made buying a property to let out more attractive. Also, the increase in property prices over recent years has meant that many buy-to-let mortgage investors have had the extra bonus of a much higher value property, should they wish to sell their property and make an additional capital gain on their investment.
There is very little difference between buy-to-let mortgages and any other types of home loans or mortgages. The choice of rates, repayment options, varying product features and a wide choice, is the same as with a regular mortgage. As a general guide, keeping in mind the semi-commercial nature of this type of loan, lenders will normally only lend 75% or 80% of the property price. This means that a greater portion of the value of the property will have to be paid as a deposit in cash or in some cases collateral. The lender may also specify requirements regarding length of letting terms and minimal rental income, as a percentage of the property value.
Although it is not possible to obtain tax relief for buy-to-let mortgages, you can offset interest payments on the mortgage against tax on rental income. Other expenses, such as agent's fees and maintenance costs can also be deducted.
Generally, if you receive the correct advice and assistance, buying a property for letting out is generally a very straightforward process and a lucrative long-term investment.