If you are looking to invest in property, or to extend an existing portfolio, you might be a major player in the field or someone looking for a relatively modest business enterprise – property investors come in all shapes and sizes.
When you have found a property that interests you, it might be residential or commercial, an entire block of flats, a number of units converted from an earlier home, a whole house, or a single flat amongst a number of others – investment property comes in all shapes and sizes, too.
To finance the purchase of the property you have found, you might also be looking for a mortgage – and may soon discover that there are as many different types of mortgage as there are property investors and the different types of premises in which they choose to invest:
Buy to let mortgages
- when approaching a lender for a mortgage, it is important to make perfectly clear that the purpose is to buy property to be let to tenants;
- a buy to let mortgage is entirely different to the standard residential mortgage held by those intending to be the owner occupier;
- the key differences are explained by the Council of Mortgage Lenders (CML), including the freedom from the regulatory controls exercised by the Financial Conduct Authority (FCA);
- the reason for the distinction drawn by the FCA is that whereas a residential mortgage may affect the borrower’s ability to live in his own home, a buy to let mortgage is used to fund what is essentially a business proposition;
- this principle determines the way in which a buy to let mortgage lender determines your ability to repay any advance;
- this is achieved with reference to the rental income your let property is estimated to yield – thus providing the wherewithal for your payment of monthly instalments;
Type of mortgage
- all mortgages fall into one of two broad categories;
- they are either repayment mortgages, where monthly instalments include elements of both interest and capital repayments, or so-called interest only mortgages, where monthly instalments representing interest payments only and the capital sum repaid at the end of the mortgage term;
- typically, the majority of buy to let mortgages have been interest only – because of the (previously) favourable tax relief on interest payments and the possibility of making the final capital repayment from the onward sale of the investment property if necessary. With the introduction of Buy to Let tax, however, this may change;
- whether it is a residential mortgage or a buy to let mortgage, your lender is certain to insist that there is adequate buildings insurance – after all, safeguarding the building against loss or damage is as much in the interests of the mortgage lender as it is you the landlord;
- just as mortgages differ, just as investment properties differ and just as types of investor differ, so too the insurance needs are tailored to the particular property purchase being made;
- to ensure that you arrange the landlord insurance most suitable for your particular investment, therefore, you might want to consult a specialist buy to let insurance provider.
Choosing the most suitable mortgage, therefore, depends on the type of investor you are and the particular type of property in which you are investing. In just the same way, the insurance with which you protect your property also has to be tailored to your own particular needs and circumstances.
Finally, check our infographic To buy or to rent, have you got the facts?for further information and facts on property ownership and considerations.