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Buy to Let

Twelve percent of all mortgage lending in the United Kingdom is done on buy-to-let property. This is nine percent higher than the buy-to-let lending rate was five years ago. Because of the crisis with Northern Rock, the cooling off of housing prices and the credit crunch of late, UK lenders are a lot more leery of lending money to properties that could end up being a financial pitfall, and because the UK housing market is currently over loaded with centre flats and multiple-resident housing, purchasing a buy-to-let property could be just that (a pitfall). Of the lenders who are willing to go out on a limb for a buy-to-let property, there is typically a much larger deposit involved (in the name of ensuring equity).

This is important to know before you think about attempting to buy a buy-to-let property. While you might have visions in your head of recouping your investment via rental prices and security deposits, chances are you are more likely to lose money with your property than to break even or make a profit.

Make sure you do your research before trying to invest in a buy-to-let property. Make sure you know about all of the legalities of such an investment before you head to the bank.

For example, are you aware of:

The tenants’ deposit scheme?

The new licensing schemes that were introduced in 2006?

The legal licenses you will need to obtain before even attempting to find funding?

How deposits made by tenants are held?

How your income will be calculated?

Do you know what Libor is? It might be your best way to get funding!

In the past, the buy-to-let lenders would want to make sure that the rent you were receiving from tenants came in at at least thirty percent above what the potential mortgage payment would be. Thankfully, because of the increase in interest rates that has been happening, now lenders are relaxing their income-debt ratio and only requiring potential landlords to break even with the amount of rental payments that come in every month.

Luckily for you, if you are looking into purchasing a buy-to-let property, the buy-to-let mortgage lenders are getting more and more competitive and offering much better interest rates. They help make up the cost that they used to gain through interest rates by increasing the loan arrangement fee by around three percent. This is important to know in the event that your buy-to-let mortgage is a single year, fixed rate mortgage.

The reason that obtaining financing and mortgages for buy-to-let properties is that there is no guarantee that a buy-to-let property will bring in the amount of money it needs to bring in. It seems like a great idea at first glance (as well as a way to earn a sizeable income) but the reality is that the housing market is slowing down at an alarming rate and people just aren’t moving as often as they used to. This diminishes the need for buy-to-let properties to exist.

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