Can you still get mortgages for buy to let in the current market? And if you can, is it really a good idea?
Buy to let is having a really bad press at the moment. Only a few years ago it was the Big Idea, with more and more lenders coming into the market. It seemed to be the sure-fire way to make a fortune.
The problem was that the boom encouraged more and more speculative developers to build properties specifically for the buy to let market, and persuade eager investors to take out big mortgages to buy them. This resulted in a saturated market and many of these investors getting their fingers burnt.
So does this mean you should give up on the idea of looking for mortgages for buy to let? Quite the opposite. Why? Because the rental market is flourishing. Many people are looking to rent, either because they have been repossessed, or because they can’t get a mortgage to buy.
But of course mortgages for buy-to-let are harder to get at the moment. A lot of lenders have taken their products off the market. There are still some very competitive deals out there, but the queues are much longer. Lenders are more cautious and are looking for the least risky borrowers.
So how can you make sure you are at the front of the queue?
1. You must have a healthy deposit. Nobody lends 95% or 100% buy to let mortgages any more. You need a deposit of at least 15% to 20% and the higher you can go over and above this, the better your chance of securing a mortgage.
2. Be extremely careful about the property you choose. You would be well advised to avoid properties built specially for the buy to let market. Decide first who your target market is going to be – families, students, young singles or professionals, etc. – and consider the preferences of this group, in terms of both area and type of property.
3. Of course, as well as knowing your target market, it’s essential to research the state of the market in that area. If you want to let to students and choose an area popular with students, you are still unlikely to succeed if there are already lots of suitable properties standing empty. Whatever your target market, find an area where demand for that group exceeds supply. The lender will check this before deciding whether to lend to you. Never forget that once you have the mortgage, you have to make the payments whether you have a tenant or nor.
4. Don’t be tied to your local area – look further afield. You are much more likely to find a suitable property that way. Of course this means you will probably need an agent and will have to factor the costs of this into your budget. But an agent will in any case make life much easier for you, especially in such matters as finding and selecting tenants.
If all this sounds like hard work, it is. But so is anything that’s worth doing. Buy to let is a serious business, not a spare-time leisure activity. And lenders of mortgages for buy to let want to see that you are serious and have done your homework. Don’t forget it’s in your interests as much as in the lender’s to make sure you can make a go of your buy-to-let business.