A primer on buy to let mortgages

By: Richard Heaney
Since its inception in 1996, the buy to let mortgage has provided investors, cash rich individuals, professional landlords etc. with a comparatively safe investment avenue which is not only bound to appreciate in the long term, but also provides a steady and reasonable return in the form of rent received from tenants.

Given the current bloodbath in the real estate market and the recessionary trends in the economy in general, such a positive perception on buy to let mortgages in the UK may be hotly contested by doom sayers.

However, when one talks of buy to let mortgages, the description ‘long term investment’ immediately comes to mind. Undoubtedly, property investments are long term investment options by nature where one needs to be prepared to wait for the returns to come in over a longer time period as the property gradually appreciates in value. For anyone else looking for immediate gains based on speculative investments, such as in the stock markets, one needs to be prepared to make profits as well as suffer setbacks from the volatility in the market.

Coming back to our buy to let mortgage discussion let’s first see why buy to let investment makes sense.

Benefits of buy to let investment

• Property investment is a more stable investment as compared to the stock markets which can swing like a yo-yo overnight. Property markets are not this volatile. Any impending change in this market’s contours can be detected by the smart investor long before it actually happens.

• You get to own a tangible asset, something which can be seen and felt, rather than a piece of paper which overnight can become exactly what it is – just a piece of paper if the stock suddenly erodes in value.

• Buy to let property owners are better placed to ride the downturn compared against other investors, since whatever happens they will be earning rental income which will fully or partially take care of the mortgage repayments.

• Factors like increasing population, rising divorce rates, single occupancy, university students etc. will always keep the rental property market in growth mode thus making buy to let investment a bit like an evergreen investment. Add to this, the previous home owners who lost their homes because of foreclosure and the future seems promising indeed.

Tips for good buy to let investment

The above mentioned points must have cleared your doubts about the viability of buy to let mortgage investments. Now I will give you some tips about how to invest in this market wisely.

Consider the location: Don’t finalize a property only because it is situated in a posh locality. Remember you are not going to live in it. So you must get a property which is ideally located for your target tenants. Like if you are targeting the University student segment, you need a property which is closer to the college and is located conveniently near budget markets and public transport facilities.

Know your target tenants: This is very important not only to decide location but also to decide upon the kind of rental you can expect and the kind of amenities you are going to provide. To extend the example of students, you certainly won’t provide plush interiors to the students as they are not known to take care of their dwellings properly. Moreover with this verification you will also get to know about their character and financial viability.

Get the property adequately insured: Accidents do happen and even if you are not at fault, as an owner you will have to pick up the tab. So don’t be caught unawares and insure the property adequately. This would also help you secure a buy to let mortgage.

Negotiate the best mortgage deal: Even in these depressing times you will find willing lenders provided your financial situation is sound and the target property has potential. But don’t go with the first one you come across. Take help from professional brokers who will line up the best buy to let mortgages in the UK. After you have located the better ones, negotiate hard for good terms such as tenure, interest rate etc.

Richard Heaney is a writer on business and finance. He specializes in writing on financial planning, buy to let mortgages UK and various other loan options. His write-ups highlight the different aspects of the credit market and broking firms providing the commercial mortgage in the UK.