Are Buy To Let Mortgages More Expensive?

A buy to let mortgage is secured on a property that the mortgage holders rent out to a third party rather than living in themselves. The lender takes account of the money that will be earned from the property as a rental income when making a lending decision, although some lenders will take the borrowers personal income into account also.

Generally buy to let mortgages are more expensive than normal residential mortgages. This is largely due to higher fees and interest rates on buy to let mortgages. I contacted several Denver real estate agents and a multi-utility connections company who reliably informed me mortgage fees can be as high as 3.5% and the interest rates on buy to let mortgages are typically anything from 0.5% to 2% higher than on normal home loans. Buy to let mortgages usually only cover up to 75% of the value of the property which means a much larger deposit will need to be put down by the buyer. Alternatively, you could first extend the home, which will give you a room to rent out and also add value to the property. For more on this topic, see this article.

However, the money that will be made from letting the property can offset all of these higher costs. With a tenant in the property a guaranteed monthly income is ensured. The number of people who now rent rather than buy is at an all time high so there should be a good market for renting the property out. There is no direct tax relief on buy to let mortgages but certain expenses can be offset against any tax payable on rental income. These expenses can include interest payments on the mortgage, agent’s fees and maintenance costs.

While higher costs may be incurred in securing a buy to let mortgage, owning a property that is let out can be a profitable investment. Once the mortgage is paid off earnings from renting out the property will greatly increase. Alternatively the owner may consider selling the property if a good return can be made on the initial purchase price.