Buy-to-let borrowers are generally faced with extra restrictions and stricter criteria from mortgage lenders.
For example, buy-to-let mortgage lenders base their decisions on whether or not to approve a loan on the likely rental income from the property instead of the applicants' annual income.
This is due to the fact that mortgage lenders require reassurance that their mortgage loans are given for properties that can be expected to grow in value.
In order to secure finance on a buy-to-let property, the rental income:
- needs to be at least 130% of the mortgage repayment and
- provide an annual yield of more than 8% of the mortgage.
The borrower will also be required to have a minimum 15% deposit and own a main residence.
Do your research
Carrying out sufficient research is extremely important for anyone looking to take on a buy-to-let mortgage, especially with the UK housing market starting to show signs of slowing down.
Also, it is more important than ever to keep tabs on the property locations that you are interested in. Other research techniques that should be taken into consideration include:
- Always have a full survey carried out on the property.
- Try purchasing a property close to where you live as research suggests the most successful buy-to-let investors do so.
- Search through local newspapers and community websites for properties.
- Don't take notice of promises of high rental yields by letting agents. Try and contact them first as a potential tenant to help get to the facts about local market conditions.
- Take note of the property’s decoration. Properties with poor décor can be bought at a bargain price.
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