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10 Years Of Buy-to-Let Mortgages

May 19, 2008
The buy-to-let market has come a long way since it's inception in 1996. At that time there were only four lenders who offered mortgage products specifically targeted at the private rented sector. Those lenders were pioneers in an industry that has boomed considerably over the past decade.

Now there are almost 50 lenders who offer a wide range of buy-to-let mortgages in the UK, and the list is constantly growing. There has also been a huge increase in the number of buy-to-let mortgages approved with the number growing from approximately 50,000 in the year 2000 to over 220,000 in 2005. This is clear evidence that investing in property has grown substantially in popularity.

The first set of buy-to-let mortgages released contained high interest rates and strict lending criteria. Large deposits were required and rental cover requirements were restrictive compared to the products available today. Perhaps as a mark of the success of the industry, interest rates have fallen considerably and lending criteria has softened.

Such changes have been largely consumer driven. More and more people are looking to develop buy-to-let property portfolios in order to create personal wealth over the long-term. Property is seen as a solid and predictable investment vehicle and a good way to provide funds for retirement.

Because property investment is a long-term venture it is best to undertake plenty of research and not rush into the market. Intensive research is important in order to ensure that the right properties are selected to suit the individual investor's goals. Investing in the wrong properties can lead to financial disaster so it is important to conduct thorough research rather than invest in property based on a slick sales pitch.

Presently buy-to-let mortgages are assessed on the property's income rather than the personal income of the investor. Lenders want to know how much income a property will generate and what the expected outgoings are when considering a loan application. The application will be assessed as a business proposal.

An investor's personal income can sometimes be taken into account in order to bolster the application if they have sufficient excess over their personal expenses. Experienced investors may also find the application process easier than new investors because lenders will perceive them as less risky.

Lenders will also require the investor to fund part of the purchase, usually in the form of a 15% deposit. The rental income will also need to fund at least 120% of the monthly mortgage payment, although these variables change over time and between lenders. These requirements have softened in recent years but they can change back at the lenders' discretion, depending on the state of the property market.

The market for buy-to-let mortgages is fluid and has changed greatly over the last 10 years. No doubt it will continue to evolve and astute property investors will do well to keep up with the changes. It is a good idea to keep in touch with an independent mortgage broker to keep abreast of the constantly changing market of buy-to-let mortgages.
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