Financial considerations for buy to let investors

Posted under Advice by Alan

Buy to let mortgages – unlike residential mortgages – are usually not computed as a multiple of the applicant’s income. Rather, they’re computed against the monthly achievable rent for the property (the ‘rent-to-interest’ cover). In other words, the rental income a property can secure needs to be greater than that of the ‘interest-only’ mortgage payment.

Historically speaking, most buy to let lenders try to look for a ‘rent-to-interest’ figure of 130 per cent, meaning that rental income will exceed the ‘interest only’ mortgage payment by 30 per cent. However, as interest rates have gone up, lenders have gone soft on this count. However, it is imperative that you check an arrangement fee that such products attract. Investors should also take into account the scenario of higher/ lower interest rates and whether the rent income will be enough to cover possible rate hikes.

Libor (London Interbank Offer Rate) may also form the basis of your buy to let mortgage loans. It is more common in the buy to let market than the residential property market.
New buy to let investors should also know about the tenants’ deposits scheme. Tenants’ deposits are no more held by the landlord. They are held by an independent government-appointed firm. This measure was taken for avoiding disputes between a tenant and landlord.