Going For A Buy To Let Mortgage Makes Sense Even Today
The day Lehman Brothers went under, it formally sounded the start of difficult times for the mortgage business. Though the fault lines were apparent since the sub-prime crisis had rocked the financial markets last year, this event seems to have lent a terrible blow to the mortgage market.
But is it really so? Isn’t this just a temporary loss of confidence in the market? Have asset finance and buy to let mortgage deals for deserving borrowers evaporated completely?
The answer is a big No!
Mortgage is essentially a significant business for the lenders and the current crisis is not because the business model is bad. It is mainly due to over aggressive investment in non-deserving borrowers. So sooner or later lenders will start disbursing loans and mortgages again with hopefully one big difference – the selection criteria for the borrowers will be tougher and more regulated.
So what does this mean for the borrowers? It means that the days of reckless buying and speculations are over and one should look for long term profits so far as real estate investment is concerned. There are no problems in long term prospects because people will always need quality residential and office properties.
In these circumstances, the buy-to-let mortgage option makes perfect sense as this option creates an asset which will improve in value over time besides generating a steady source of income which will help in repaying the mortgage instalments in due course.
Lenders are quite aware of this fact so the buy-to-let mortgage deals are still available for the borrower who has solid financials and good credit rating. Investing now in this sector makes even more sense as the property prices have touched rock bottom and good properties are available at much reduced prices in good areas. But before you jump on the buy-to-let bandwagon here are a few facts you should always keep in mind.
Do proper research
It will be a long term commitment so do thorough research about the market, property and the lender before applying for the mortgage. This is important because there are properties galore at depressed prices and with careful deliberation you can get a very good property at much lower rates which will fetch you fabulous returns in the medium to long term.
As for the market, if you are a newcomer make yourself aware of all the pitfalls and opportunities inherent in the buy-to-let market. This will help you manage the property and the mortgage in a better way.
Last but not least, know your lender. Find out whether it is financially sound to offer you good terms and whether it has enough redundancies built in to weather the difficult times.
Find the right neighborhood
Buy-to-let investment is made to earn regular income from the tenants. So a property which fulfills most of the tenants’ requirements will be a much sought after one. So choose a neighborhood which is just right for your target tenants. Make sure that the common amenities like good transport, closeness to parks, schools, markets etc. are in place.
Do the calculation right
The amount of loan sanctioned will depend upon the cost, the prevailing rent in the area and your credit worthiness. So apply for the loan which you realistically feel will be serviced by the rent received. The realistic calculation of the rent receivables is important because usually buy to let mortgage lenders in the UK want rent to cover 125% of the mortgage repayments.
Richard Heaney is a writer on business and finance. He specializes in writing on financial planning, buy to let mortgages, asset finance etc. His write-ups highlight the different aspects of buy to let mortgage available in UK.
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