Buy-To-Let Mortgages

How can taking out a buy-to-let mortgage be part of a debt strategy? If you have a significant amount of equity in your home, then by switching your mortgage to a buy-to-let mortgage and then letting out your home, you may be able to generate a significant amount of extra income.

Buy-to-let mortgages – things to consider

Letting out your home after switching to a buy-to-let mortgage can increase the amount of income you earn, but there are any factors to consider.

The most pressing factor to consider is; where are you going to live if you let out your home? You’re probably going to have to find rental accommodation, and of course in order to be economically viable, you need to cut your outgoings as much as possible and this may mean downsizing the property you live in.

How do you get a buy-to-let mortgage?

You generally need a larger deposit than is normally required for the kind of mortgage you’d take out in order to buy a home, although significant equity in your property can help.  This is because most buy-let-mortgages are offered up to a maximum proportion of the value of the property, such as 75%.

So if you are looking at a buy-to-let mortgage at a 75% ‘loan-to value’ ratio, and your property is worth £100,000, then your maximum sum loaned would be £75,000. This means you must have at least around £25,000 in equity or have the funds to cover any difference.

Additionally, a buy-to-let mortgage is a specialist product that is not offered by many mortgage lenders. As such, the arrangement fee may be relatively high. While it might be possible to include this fee in the sum loaned, it’s still a factor you need to consider, as any fees you include within the new mortgage amount will have interest charged on them for the duration of the mortgage.

Another buy-to-let mortgage restriction is that the lender must satisfy itself that you are likely to achieve more than a certain ratio of the monthly mortgage repayment; 125% is typical. This means that if your monthly mortgage repayment is £400, then the lender will want to be reasonably sure that you’ll be able to let out your property at 125% of £400, and that is £500.

Will you have a good supply of tenants?

In order for a buy-to-let mortgage debt strategy to work, you need to be sure that there is a good tenant demand for your property. Every month that you don’t have a tenant in your property (this is known as a ‘void period’) means that you won’t have the rental income with which to make the buy-to-let mortgage repayment. You will, of course, need to find the money to meet this repayment, because failure to do so may result in action being taken against you that could lead to your property being repossessed.

What else will you need to think about?

As a landlord/lady, you are obliged to attend to any repairs that need doing to the property to ensure your tenants have a reasonable standard of accommodation.

So if the roof begins to leak, or the boiler breaks down, you are responsible for finding the funds in order to fix these.

Thinking about a buy-to-let mortgage?

Making your home available to tenants might be a suitable debt strategy for you, but there may well be even more suitable debt solutions available for you, depending on your circumstances.

Not right for you? Read about other debt solutions that may suit you better: Trust Deed, Sequestration, Debt Arrangement Scheme (DAS), Low Income, Low Assets (LILA), Bridging Loan, Remortgage, Debt Management Plan, Full & Final Settlement, Self-Managed Arrangement, Equity Release, Debt Consolidation Loan.