With many would-be first-time buyers being priced out of the market, the rental market is booming. To take advantage of these favourable conditions, many investors are choosing to buy property with a view to renting it out to tenants. These investments are known as buy to let mortgages.
Getting a mortgage to finance this type of investment is relatively straight forward, unless you are considering investing in the holiday rental market, in which case lenders are slightly more reluctant to approve applications. This is because leases are usually signed for a much shorter term, more often than not lasting just one or two weeks, and it is therefore much more difficult to guarantee occupancy of the house or flat all of the time. In addition to this, uncontrollable factors such as the weather play a major role in the demand for holiday accommodation, and this can obviously have a harmful effect on any buy-to-let business venture.
The first thing to do if you are considering taking out a buy-to-let mortgage is to work out how much you need to borrow. Remember, you will have to cover mortgage repayments whether the property is filled or not, for example during the summer months if you plan to let the property out to university students, so bear this in mind when preparing your budget.
Next, study the market. Last year, the buy-to-let industry was said to be worth a staggering £40 billion, so make sure you are choosing a geographical area where competition isn't too rife, and one where demand is likely to continue for the foreseeable future.
As with any kind of mortgage, eventually you will have to decide whether you are going to go with the repayment mortgage route or the less certain interest-only mortgage route. Whichever you choose, find out whether payment holidays or underpayments are allowed, as having some flexibility here may prove valuable during times of financial hardship, for example when the property is empty or when work needs doing. In the same way, you may find it helpful to have an overpayment facility so that you can increase payments at times of high-profit, which can serve as a 'cushion' for less prosperous times.