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Buy-to-Let Mortgages Overview

Buy-to-Let mortgages are specialised products designed for situations in which residential property is purchased with the intention of letting it out. While many people may think they buy-to-let mortgages are a type of residential mortgage, they are in fact viewed by the Financial Services Authority as commercial mortgages. In this way they are similar to finance products secured on commercial properties.

Because of this, lenders usually assess buy-to-let mortgage applications based on the expected rental income of the property compared to the expected outgoings, such as the monthly mortgage payments. Some buy-to-let mortgages may also take into consideration income derived from other sources, such as the applicant’s salary. This can sometimes boost a mortgage application into being successful where it would otherwise be rejected. It is important, however, that the applicant actually intends to fund any shortfall from other sources and is not falsely exaggerating their income to gain approval.

In addition to the rental assessment, the properties themselves must be acceptable to the lender before they approve buy-to-let mortgages. Properties must be structurally sound and must not contain any other factors that may increase risk such as restrictive covenants from city councils. Therefore, before buy-to-let mortgages are approved by lenders, a thorough investigation is conducted into the suitability of the property.

Buy-to-let mortgages are normally issued to a maximum 85% loan-to-value ratio, although some lenders had previously introduced 90% LTV products while the property market was booming. In recent times, however, loan-to-value ratios have declined dramatically as the mortgage market experiences turmoil. This means that the property investor will normally be required to fund a deposit to make up the shortfall.

The market for buy-to-let mortgages has increased substantially over the past decade and has become highly sophisticated. As a result, property investment has boomed in the UK during this time as more and more people seek to use it as a method of supplement their income and provide long-term financial security for their retirement.

Subsequently, as the property investment market has grown, so has the market for buy-to-let mortgages, making it highly competitive. This means that lenders must compete for business by offering their best possible interest rates, fees, and other costs for their buy-to-let mortgages.

In more recent years, UK residents have broadened their horizons and have sought to invest in overseas property. Because of this, the size and sophistication of the market for overseas buy-to-let mortgages has also increased. This has also been a by-product of the turmoil in the UK property market. Investors are increasingly looking overseas to find more secure markets with better growth prospects.

Professional advice should be sought from a qualified mortgage broker or independent financial adviser in order to help you select the right buy-to-let mortgages for you, based on your individual circumstances. Investing in property is a big commitment and the average size of a buy-to-let mortgage product is substantial. A qualified mortgage broker should be able to help you secure the best product for your needs that will cost you the least amount in repayments over the life of the loan.

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