Buy to Let Mortgages- A Smart Option for Property Investment?

As demand for rental properties continues to accelerate both in the capital and more widely in the UK, now is a time many of us may start thinking of making the leap into investing in property. Given the volatility in other investment markets such as crypto, property can provide a resilient alternative- as evidenced by the market’s recovery from COVID. The property market is also comparatively well-regulated and transparent, which provides further reassurance for investors. However, with the current rate of inflation putting a squeeze on mortgages and landlords, this investment can seem daunting. In this article, I’ll attempt to outline the basics of one property investment method available- the buy to let mortgage.

What is a buy to let mortgage?

Buy-to-let mortgages are pretty self-explanatory- they are for those who want to invest in property in order to rent it out. Whilst there are basic similarities to regular mortgages, there are a few differences. Perhaps most crucially, they are almost always interest-only. This means that you only pay the interest each month, and not the value of the loan itself. The original loan is repaid in full at the end of your agreed term. As one would expect, interest rates and fees are often higher than with an ordinary mortgage. However, lending is covered under the same laws as other mortgages, so you remain protected.

Can I get one? Is it right for me?

There are some stipulations on who is eligible to get a buy to let mortgage. You’ll be eligible if the following apply:

  • You own your own home- either with a mortgage or outright.
  • You earn over £25,000 a year. Anything under this and you might find it difficult to find a lender.
  • You have a solid credit history.
  • You are under 70-75 years in age- lenders typically impose upper age limits.

 

What are the risks?

As with any large investment, there will always be risks. There will be a risk of property prices going down, despite the current strength of the market. There is also the risk of unreliable tenants, whether it’s a vacant property, unpaid rent or property damage which may not be covered by insurance, this could result in a loss in your investment. You also need to bear in mind that given the increasing interest rates at the moment, you would need to ensure that the rent is going to cover the repayments, as well as anything else that may go wrong.

What are the rewards?

It’s a great long-term asset, as over a 10-20 year period income and capital growth can be higher than other investment forms. Also, you’re the boss! It’s something you are in control of, and this includes being able to add value to the property, whether through adding an extension or refurbishing. Furthermore, while the property worth may decline, it would be extremely unusual for it to become worthless, unlike investments such as stocks and shares.

So, if you are interested in buy-to-let mortgages as a way to get onto the property ladder, I would advise firstly discussing your plans with a mortgage broker, as they’ll help you to get the best deal for your personal circumstances. Consider whether it’s the right option for you- it’s an investment format that best suits someone who wants something with long-term goals, that may require maintenance and therefore you will need to be involved. If that’s you- go for it!

 

By Israel Moskovitz

 

ISRAEL MOSKOVITZ BIO:

Israel Moskovitz is the founder and Chairman of the Avon Group investing in residential and commercial property. He has over 30 years’ experience as a developer and property manager.

 

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