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Bag a buy-to-let gem

Bag a buy-to-let gem

Category: Buy To Let

Updated: 13/12/2012
First Published: 12/12/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The buy-to-let market has shown some signs of recovery over recent months, providing some welcome relief to investors.

Exceptionally high demand for rental properties, largely as a result of frustrated buyers facing difficulties securing an affordable residential mortgage deal, has driven up rental costs, helping to provide landlords and investors with healthy yields.

What are buy-to-let mortgages?

Buy-to-let mortgages are essentially mortgage products which allow you to purchase a property with a view to leasing it out to tenants.

How are they different from residential mortgages?

Buy-to-let mortgages differ from residential deals in that the mortgage lender will base your affordability against the rent you intend to charge the tenant.

Lenders will typically want the rent to be around 125% of your monthly mortgage repayment.

What are the products like?

An increase in activity within the buy-to-let market has boosted choice, with product numbers growing from 330 in December 2010 to 476 today.

Buy-to-let rates have also dropped over the same period, with fixed rates falling substantially.

What other costs are involved?

It can be easy to underestimate the number of costs involved with owning a buy-to-let property, aside from the obvious mortgage costs.

Maintenance, insurance and other running costs can all add up. If you are planning on letting the property independently and without a letting agency, you will have to pay your own advertising and letting agreement costs.

Letting a property through an agency will involve costs such as set-up fees and management costs, which are often taken as a percentage of the rent.

Top 5 two-year fixed rate buy-to-let mortgages:

Heading up the two-year fixed buy-to-let market is Skipton Building Society with a rate of 3.48% to 28.2.15 for deposits of 40% and over.

An arrangement fee of £995 is payable and incentives of a free valuation and free legal fees are offered if you are looking to remortgage.

Coventry Building Society offers a highly competitive rate of 3.29% to 31.1.15, with a maximum loan-to-value (LTV) of 65%.

An upfront fee of £250 is payable, with an additional £1,749 either added to the mortgage advance or paid upfront. Incentives of a free valuation and free legal fees are also offered to remortgage customers.

Also with a maximum LTV of 65% and offered by Coventry Building Society is the 3.99% to 31.1.15. Despite having a higher rate, this mortgage has a lower arrangement fee of £250, so may be handy if you are looking to keep initial set-up costs to a minimum.

Skipton Building Society offers a two-year rate of 3.88% to 28.2.15 for investors with deposits of 30% and over. A fee of £995 is payable, whilst a free valuation and free legal fees are available if you are looking to remortgage.

Hot on the heels of Skipton's deal is Virgin Money offering a rate of 3.89% to 1.2.15. This deal has a £1,995 arrangement fee and would suit borrowers with a reasonably large deposit. A £500 rebate is also offered as an incentive.

What to do next….

Find the best Buy-to-Let mortgages

Find 2 year fixed BTL mortgages

Find tracker rate BTL mortgages

Find BTL mortgages for new landlords

Speak to a BTL mortgage adviser

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.