Choice

What Type of buy to let mortgage?

You can have either a repayment or an interest-only mortgage. The Financial Services Authority, otherwise known as the FSA, states ‘If you choose an interest only mortgage, you should think about making capital repayments when you can afford to do so to reduce the amount you’ll need to repay at the end of the mortgage term’. However, most buy to let investors will choose an interest only mortgage for tax reasons (the investor offset’s the maximum amount of interest against the rental income throughout the mortgage term). The Financial Authority also states ‘You might feel this is unnecessary if you intend to sell the property to repay the mortgage. However, bear in mind that, if house prices fall, you might not be able to sell for as much as you had hoped. And you will have to make up the difference if the property sells for less than what you owe – a risk that increases, the higher the percentage you borrow. If you sell for a profit, you may have to pay capital gains tax.’ The FSA’s cautionary approach is something that the average buy to let investor seems to ignore.

You may read in many articles that buy to let mortgages tend to have higher rates than residential mortgages and typically charge higher fees. This is, apparently, due to the perception amongst banks and other lending institutions that Buy To Let mortgages represent a greater risk than residential mortgages. This may well be the case, as a general rule, but you can find rates through specialist buy to let mortgage brokers such as Landlord Mortgages that are much lower than residential mortgage rates. In 2006 Landlord Mortgages most competitive deal stood at Bank of England base rate plus 0.24% for the term of the mortgage, a rate that hasn’t been matched by many residential mortgage providers.

Buy To Let Mortgages can be fixed, capped, discounted or variable. The rate or the underlying rate after the fixed can be linked to the Bank Of England base rate or Libor rate, these are normally known as tracker mortgages. Buy To Let mortgages might have flexible features such as overpayment or underpayment.