Buy to let mortgages happen when an investor borrows money in order to purchase another private residential property. Lenders in the United Kingdom usually offer this type of mortgage, but best buy-to-let mortgages and other types of mortgages involving properties are available in other countries as well. This type of arrangement requires the borrower to give a larger down payment because of the high likelihood of default on this particular loan.
Lenders in the United Kingdom approve a loan from an applicant based on a multiple of the borrower’s means. Usually, lenders of the best buy-to-let mortgages allow people to purchase properties that amount thrice their yearly salary. In addition, underwriters take into consideration how much the borrower will earn from renting or letting out the property to other people. The rule is that the borrower’s rental income must be bigger than his monthly mortgage in order for him to regularly pay the loan. This also ensures that he can still pay even if there is no income received for a particular month.
Like other types of loans, fixed and adjustable rates are also offered with the best buy-to-let mortgages. The amortization of fixed loans is around 20 or 30 years, and the borrower has to inclusively pay the principal and interest. On the other hand, interest-only payments are needed with adjustable rate mortgages, and rates fluctuate every month or year. People commonly apply for a buy-to-let mortgage when the price of homes in the market is rising, during which they expect to make more profit by eventually selling the property.
Back then, lenders in the UK were very cautious when it comes to financing investment properties because of the rights given to renters, preventing investors from evicting a renter right away despite the inability to pay his or her rent. Since 1988 when The Housing Act has been enacted, residential leases have been classified as assured shorthold tenancy agreements, and this term was set harder on stone when the act was amended in 1997. Under the law, renters who failed to pay their rent for eight months can be evicted from the property.
With all best buy-to-let mortgages, lenders have the right to foreclose a purchased property if the borrower is unable to pay and defaults on the payments. Following the foreclosure of a home, lenders can sell the property through a private sale or at auction, and they can use the generated funds to pay for outstanding taxes, loan balance, and insurance costs. Because there is so much risk of borrower default on the part of the lender, buy-to-let mortgages are not offered in places where home prices are going down.