‘Buy to let’ - an active market

Buying a property for investment purposes is usually termed as a ‘Buy to Let’. The property is normally let out on a six month assured shorthold tenancy (AST) agreement.

This is a very active market and many mortgage lenders offer buy to let mortgages to both experienced landlords as well as first timers.

One such lender is BM Solutions.

Owned by the Lloyds Banking Group, BM Solutions has been at the forefront of the buy to let market for some years.

However, their appetite to lend appears to be increasing and this can only be good news for prospective borrowers.

They have recently altered their criteria and will now accept mortgage applications where landlords are letting their properties to students or tenants who are receiving benefits (including housing benefit, rent rebate or rent allowance). Maximum number of people on an AST is five.

This is a good move and looking to assist a specific area of the Buy to Let market.

Rates in the Buy to Let sector are also quite competitive with 5 year fixed rates available in the mid 3%’s and some products offering free valuation and legal costs for remortgages.

For shorter term loans, the rates are lower.

As First Time Buyers struggle to raise deposits to climb onto the property ladder and some turn to, or continue to rent, the Buy to Let market should remain buoyant for some time yet.

Buy to Let properties will often provide a modest monthly return over and above the mortgage payment.

The additional amount can be used to supplement income, or, with flexible mortgages, can be used to “overpay” the mortgage and reduce the term.

Most lenders in this sector will require the rental income to exceed the mortgage payment by up to 25% and, after costs such as managing agents this should leave some spare cash to cover repairs, maintenance and landlords insurance.

It should also enable a fund to be established to cover the mortgage payment in the event that there is no tenant in situ for a while.

Generally, Buy to Let should be considered as a long term investment.

That said, it is a popular sector of the market and can provide a source of income (after expenses) and capital appreciation over time.

Remember though that the value of property can fall as well as rise and you will need to take this into account in your planning.