It is expected that by 2023, the buy to let mortgage market has decreased in popularity due to the uncertainty in the market regarding interest rates and house prices.

The number of investors looking to purchase rental properties has been increasing rapidly in recent years, and this trend has recently changed as landlords are put off by the current market.

Buy to Let Mortgages

Buy to let mortgages are a highly attractive investment for those looking to make a long-term profit from letting out houses. However, the market has slowed down for buy to let properties as buy to let deals aren't very desirable to landlords and people looking to buy their first rental property.

The buy to let mortgage market has also been buoyed by the increasing popularity of buy-to-let investments , many are often looking for an alternative to traditional investments such as stocks and bonds.

What to consider when purchasing a buy to let property

A buy to let mortgage is usually taken on an interest only basis, this is when the monthly mortgage payments only lower the interest on the mortgage balance not the loan linked to the investment property. The payments are still taken once a month like a repayment mortgage.

Just like standard residential mortgage, you will need to make sure the purchase price of the property is accurate and realistic, when the valuation goes ahead for the property they will also value how much projected rental income you are likely to earn on the property.

Mortgages for buy to lets do differ slightly from standard residential mortgages as you will need a minimum deposit of at least 25% of the purchase price however with some lenders you don't require a minimum income. Monthly payments are typically lower on these types of mortgages as you will only pay towards the interest.

You will need a repayment strategy to cover the outstanding balance  once your mortgage term has come to an end, the most common is to sell the property unless you have the funds to cover this amount. You may also need to consider any capital gains tax you may be liable for if you sell your property at a profit.

Due to the uncertainty in the market, we are seeing that many portfolio landlords (someone who owns four or more properties for investment purposes) are selling 1 or more of their properties as the buy to let products are rising and the stress testing being conducted isn't fitting the criteria.

With mortgage costs, tax rising and additional stamp duty  for landlords, it has become difficult to obtain the mortgages needed for investment purposes, and interest rates and criteria are changing regularly. Your mortgage advisor will suggest you have buildings insurance on the property so you are protected if something was to happen.

You are also at a better chance of getting a mortgage on interest only if you have a good credit history as you are seen as a more reliable borrower to the lender. You will have better mortgage rates available to you which mean the mortgage products offered will be more suitable for you.

What are the risks of a buy to let mortgage?

However, buy to let mortgages do come with some risk. The buy-to-let market is highly competitive, so there can be high competition for rentals in certain areas. This means that prices can fluctuate significantly over a short period of time and can make buy to let mortgages a riskier investment.

It is also important to consider the potential tax implications of buy to let properties, as buy-to-let investors may be liable for higher levels of taxation than standard homeowners.

Buy to let properties

When you are looking to invest in a buy to let property there are certain factors you need to consider, the main factor is the location. Is the property in a good rental area for example is it close to hospitals, train stations and popular schools. You also need to consider buy to let statistics, for example rental yield, market growth and average house prices. You may also what to consider any future housing developments and retail developments.

Overall, buy to let mortgages are expected to remain a popular option among investors in 2023, and can be a great way to make a long-term profit from letting properties with the rental income they will receive from their tenants. However, it is important to consider the risks involved before investing in buy to let properties. 

By researching the buy to let market thoroughly and seeking financial advice if necessary and consider the overall cost, investors can ensure that they are making an informed decision about their buy-to-let investment.

LTC Mortgages can advise you throughout the process when looking to purchase a property for investment in 2023, contact us today at 0151 662 0188 or email us at [email protected]