Business lending is not regulated by the Financial Services Authority, though some landlord mortgage can be. As you are collecting money from a tenant the mortgage may potentially be regarded as a special commercial type of loan or a buy to let. Most landlords are looking to make a profit perhaps only from capital appreciation in time which is why many only go for an interest only mortgage which would also have tax advantages whilst making lower overheads to their business of renting property.
Many high street lenders now cater for this type of lending as it has boomed in the UK over the last 10 years with the high rise of property prices and lower returns on investments. Many people regard this as a future nest egg or type of pension. If the property was purchased a few years ago the rental income can be high for profit but a recent purchase would be lower as the higher property prices mean on average landlords have to have a higher mortgage to cover the purchase.
Let to buy
A let to buy mortgage is where your mortgage company will allow you to purchase a new property to live in and rent out your old property with them. If the rent adequately covers the original mortgage then the lender potentially may except you servicing two mortgages if all of the lender’s standard criteria is met.
When deciding to buy to let property caution should always be taken as there are no guarantees of rising house prices and rental income may fall with market saturation. Also you may have dead times (means that you are responsible for maintaining the mortgagee until such times as this situation has been rectified) in the rent when good tenants are hard and expensive to find. Tenants can cause huge problems with landlords for example not paying rent, disagreements, property abuse and damage. Letting a property can be risky and very stressful. Students and DHSS tenants potentially may be higher risk due to low income. Low rental income indicated from the valuation report may mean placing a higher deposit down against the loan. Property management companies may also have to be employed to manage and find tenants.
Unknown factors may go against a property for example if it is a flat above a shop that was kinetically one type of business that did not disturb the tenants or property valuation for example a flower shop, but a business change could be a nuisance and reduce the valuation if the new business owners had a late night taken away.
The landlord will have to have specialist landlord insurance in place. With a letting mortgage this will be mandatory and the solicitor will want to see a policy in place with the lender’s name on the schedule along with the correct sum insured for rebuild costs. This only covers the rebuild costs but not the current market value on the buy to let property. Standard residential building and content insurance will not be valid. The tenants may wish to purchase their own contents insurance. If the landlord supplies a fully furnished property to rent then he may put content insurance in place to protect the contents supplied. Tenants can often take less care of a property than an owner as they regard the property as temporary and not theirs.