Why do I need a buy to let mortgage?

always_sunny

Because of ridiculous legislations in the UK made to profit banks.
It doesn't happen in many other countries... then again most countries don't have leasehold either.

aneary

There is a greater risk to the bank if it's BTL if the owner doesn't pay the mortgage and it's repossessed the bank becomes a LL if it isn't BTL the occupiers (owner or tenant) get kicked out.

ReadingTim

You won't be getting any sort of mortgage until you've finished school, so you'd probably be best concentrating on that for the next few years anyway.....

steampowered

always_sunny wrote: »

Because of ridiculous legislations in the UK made to profit banks.

Yes, it does happen in other countries. A quick google search reveals that France for example also has a separate category for BTL mortgages.

This has absolutely nothing to do with legislation. The price of BTL mortgages is not regulated. Banks are perfectly free to offer cheap buy-to-let mortgages if they wish.

It is simply that banks choose to charge a higher interest rate on BTL mortgages because the risk of default is higher.

always_sunny

steampowered wrote: »

Yes, it does happen in other countries. A quick google search reveals that France for example also has a separate category for BTL mortgages.

This has absolutely nothing to do with legislation. The price of BTL mortgages is not regulated. Banks are perfectly free to offer cheap buy-to-let mortgages if they wish.

It is simply that banks choose to charge a higher interest rate on BTL mortgages because the risk of default is higher.

In France depending on how the property is bought there're PTZ that restrict the letting of the property (because of the rate) for the first 6 years if there're other conditions (similar to the consent to let here in the UK). Other mortgages do not have those restrictions.

In most countries the rule doesn't exist (from Australia to the United States). Why?
Looking at the stats it seems that home occupied have higher rate of repos than BTL (and thus carry higher risk)



As long as the mortgage is paid, the lender shouldn't care what the use is for (residential/let).

Dorian1958

Yes you can buy a property with a normal mortgage and rent a room out, there is a tax allowance under the rent a room scheme. But you must be living in the property and you may need your lenders permission. Also your insurer will have a view on the associated risks, so make sure you are covered.

steampowered

always_sunny wrote: »

In France depending on how the property is bought there're PTZ that restrict the letting of the property (because of the rate) for the first 6 years if there're other conditions (similar to the consent to let here in the UK). Other mortgages do not have those restrictions.

Right, so you openly admit that the usual French mortgage bans people from letting the property, and that a higher interest rate is applicable otherwise. Am I missing something?

In most countries the rule doesn't exist (from Australia to the United States). Why?

A 2 second google search reveals that the USA does indeed also have more stringent requirements for buy to let mortgages.

See for example this page on buy-to-let mortgages from Wells Fargo which clearly explains that the bank requires a larger down payment and charges higher interest rates on these mortgages.

graph

Your graph shows absolute numbers. There are less repossessions for BTL properties because there are less BTL properties.

It is the proportion of mortgages which end up in default that matters. And default rates are higher for BTL mortgages.

As long as the mortgage is paid, the lender shouldn't care what the use is for (residential/let).

This totally misses the point. The lender doesn't know whether it will get paid or not when it issues the mortgage. The lender cares about their chances of getting paid.

This is exactly the same reason why a smaller deposit or a bad credit history means a higher interest rate.

People are more likely to default on a loan secured against an investment, than they are on a loan secured against their home.

csgohan4

if you have to ask what the difference between BTL and a lodger, may I suggest you consider the legal and tax implications of renting out a room as a Land lord?


Do you know that tax deductible mortgage interest is reducing every year?


What yield are you looking at per year? Do you know eviction costs? Do you know the process of evicting someone who doesn't pay rent for 2 months? Do you know the costs involved???


Are you real OP or are you trolling?

saajan_12

always_sunny wrote: »

Looking at the stats it seems that home occupied have higher rate of repos than BTL (and thus carry higher risk)



As long as the mortgage is paid, the lender shouldn't care what the use is for (residential/let).

This is a common fallacy to look at just the frequency / probability of repossessions. To quantify the lender's risk, you also have to look at the cost / loss if there is a default / repossession. This includes cost getting to point of sale, as well as the basis to the outstanding loan.

-> Lenders are often willing to offer interest only for BTLs as the investor can sell up to repay the loan, whereas for a residential you still need somewhere to live. But that means the total loan never decreases for a BTL, leaving higher risk that the sale may not cover the loan if house values drop.

-> In a residential, the lender has a contract with the occupant that they can repossess in the event of a default. In a BTL, the tenant may have a legal tenancy with a fixed term which is still in force beyond a default in payments. So, the lender has additional costs as they become a landlord, while not receiving mortgage payments until they can serve notice. This increases the cost of a repossession.

The above mean that they have higher risk and offset this by charging higher interest. We don't exactly want to encourage subprime mortgages right..

But further, there is an element of supply and demand. Partly due to only paying the interest, rents are often much higher than mortgage payments, increasing the demand from BTL investors. Lenders can increase the interest cost and BTL investors will still demand it. To keep up this demand, lenders have to be strict in restricting BTL investors to BTL mortgages otherwise they would just move to residential.
It's like it doesn't cost a train company any more if an extra passenger jumps on, but they still have to check tickets otherwise no one will buy one and they lose the revenue.

always_sunny

steampowered wrote: »

A 2 second google search reveals that the USA does indeed also have more stringent requirements for buy to let mortgages.

It might be what you search for. Do banks in other countries offer investment mortgages? Yes.
Do other countries allow you to let the property without converting mortgages after the purchase? Yes.

In the UK however mortgages are strict with these rules and as soon as you want to let your property (in case circumstances change) it's either a consent to let for few years and then have to convert to a BTL mortgage at higher rate.

Before BTL were introduced in the UK, how were people ended up buying houses and let them? Cash?
Remember, most countries do not have these 'complexities' you seem to have here in regards to housing. Offers are not binding, chain and triple chains and the likes.

Believe it or not in many other countries all this non-sense doesn't exist and for most foreigners (who first come here) it's difficult to grasp. Continue to google.