A guide to buy-to-let mortgages

A buy-to-let mortgage is aimed at borrowers purchasing a property with the aim of renting it rather using it as a home for themselves.

The idea of such a venture should be that the amount of rent charged exceeds the mortgage payments and, ideally, property maintenance costs.

Increasingly, especially in student towns, these types of mortgages have been taken out as a money-making scheme rather than as an alternative way to financing buying a property.

How to take out a buy-to-let mortgage

When taking out a buy-to-let mortgage borrowers are generally subject to a tighter criteria than with a normal loan of this type.

As well as taking into consideration the individual's credentials the bank will also make its own assessment on how profitable it thinks the property will be.

Banks will look at the likely rental income of the property and will expect this to be at least 130 per cent of the mortgage repayment.

Furthermore, the rental will need to provide an annual yield of more than eight per cent of the mortgage, according to Mortgages.co.uk.

What to consider

When taking out a buy-to-let mortgage it is vital to research the area you are buying in, as well as the property market, before committing to a purchase.

Impartial property advice website BuyAssociation stressed the importance of carrying out this kind of research thoroughly.

Property editor of BuyAssociation, Paul Collins, said: "If you are buying in or near large towns, because you need to be thinking about renting out and the type of people you will be renting it out to."

In the wake of the credit crunch many experts have predicted that now is not the time for those who have no experience of the market to be taking out buy-to-let mortgages.

Andy McQueen, managing director of The Mortgage Works, commented on this matter.

He said: "Clearly the current climate is not ideal for first-time landlords, given the limited number of deals available to them, but experienced investors may find excellent opportunities in a cooling housing market to purchase additional property."

Before you buy checklist

However, for those who do decide to take the plunge into the buy-to-let market there are some key things to do before signing the mortgage.

Firstly, make sure that you have had a survey carried out on the house, purchase a property that you can access easily, both so the tenants can contact you and so you can contact them, and don't listen to estate agents about the average rental prices in the area - have a look for yourself.

Also, don't be sucked into buying the kind of house you would like to live in, because you won't be living there. Whereas buying your own home is a highly personal, intuitive process, purchasing a buy-to-let property has to be a calculated business decision.

It is also worth considering the property's décor and whether or not you can afford to furnish it in a way that will encourage people to rent. If you can't attract tenants rock times lay ahead.