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Your expected rental income must exceed your mortgage repayments by a certain percentage. For example your mortgage lender may require a rental income of between 100% and 130% with the most common percentage being 125% at this time. Your lender will also want to establish whether the property you are buying is a good long term investment. So buy-to-let mortgages are subject to the usual status checks. Generally buy-to-let mortgages are available for between five and 45 years and for up to 80% of the property value.
Historically, buy-to-let mortgages came to the UK market as commercial mortgages and gradually moved towards a semi-commorcial status to end up being classified, depending on the lender, as residential mortgages. The impact of the Credit Crunch was to trigger a 'return to basics' for buy-to-let deals, i.e. a return to these semi-commercial features: higher set up costs and higher interest rates compared to standard residential deals. As a result, the majority of deals available today not only attract higher interest rates than you might expect compared to rates advertised publicly in the press etc., but also come with high set up fees. This is because many lenders will charge a percentage fee to set ip up, that is to say a percentage of the amount borrowed. For instance, ifyou borrow say £150k, before you know it you could be charged £4,500 just to set up a buy-to-let mortgage with a 3% arrangement fee set up. Comparing flat fees deals and percentage deals is quite complex and you will probably need our assistance to find out, given the amount that YOU wish to borrow, the most suitable buy-to-let mortgage for you.
When considering a buy-to-let it is also necessary to bear in mind any additional costs such as letting agent's commission, insurance premiums for building and contents cover and rental and legal expenses cover, the costs of keeping the property in a suitable condition for letting, service charges and ground rents if the property is leasehold.
Not all forms of mortgage are regulated by the Financial Services Authority.
Let-to-buy mortgages.
Whereas buy-to-let mortgages are taken out when you already own an investment property or are thinking about buying one, a let-to-buy mortgage may be a solution for you when you become an 'accidental' landlord. Its aim is to allow you to retina your existing property when you are thinking about moving home.
The standard reflex when you wish to buy a new home (and you are not a first-time buyer) is to put your property on the market and synchronise sale and purchase. However, in some cases, you could be able to actually retain your home, let it and still purchase a new one. Obviously, this approach may not be available to everyone, and moreover may not be suitable for everyone, but in some cases can be a powerful solution. The key condition to respect will be to ensure that the rent you anticipate will be sufficient to meet your mortgage requirements.
Lenders will greatly vary in their views about let-to-buy as some will allow it whilst others will impose more or less tight restrictions. There would be two elements to consider: satsifying the mortgage lender for the old property (it can be a new buy-to-let lender or your existing lender granting you consent to let) and the one for the new property (new residential lender or existing lender allowing you to take your mortgage with you to the next property).
As you can imagine, it is a complex set up and at JAM Mortgages we have a wealth of experience in dealing with let-to-buy mortgages and would be delighted to assist you with your enquiry and review options. If we feel it is not a suitable solution for you, we will frankly tell you and explain you why.
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