100% Buy to Let Mortgage: Buy Properties without Downpayment
Parmdeep Vadesha
January 15, 2009
A growing number of people are looking at property investments as a better alternative to a pension. Becoming a landlord is considered a good means to earn income by many and can be particularly beneficial to those who are investing it for the long-term. When it comes to obtaining funds for a buy to let property, sophisticated investors can turn to a 100% buy to let mortgage.
A 100% buy to let mortgage is a type of loan that matches the total purchase price of your property and does not require you to put down a deposit. There are different forms of 100% buy to let mortgages: fixed, discounted, capped and variable rate. A 100% mortgage is extremely helpful if you want to obtain properties without being overwhelmed with the need to make a substantial deposit. In the typical scenario, the lender will loan you the full amount and you pay it back plus the interest over a certain span of time. The payment period may be spread out over twenty to twenty-five years.
With this type of mortgage, lenders will typically ask you to provide proof that you can afford the mortgage repayments. If you have a spotless credit history, then getting a 100% buy to let mortgage will not be difficult for you. But even so there are rare instances when a lender would choose to provide such loan for a borrower with poor credit rating. For some people, this type of mortgage is used to release the equity in their properties and subsequently use the money to consolidate their debts.
One of the most notable characteristics of 100% buy to let mortgages is the risk of negative equity. This is when the value of the property drops and becomes lower than the loan amount. Negative equity normally occurs when the property market takes a dip. This often leaves lenders in a precarious position thus they charge higher rates of interest on the mortgage than for a loan where a deposit is made. If you have a 100% buy to let mortgage, the lender may also require that you pay a mortgage indemnity premium.
When your property falls into the negative equity trap, it is never a wise move to sell it because the value will not be able to cover your mortgage. To avoid the negative equity risk, it is important that you do your research beforehand and ensure that the property you are interested in buying is not in an area that´s likely to experience a downturn in property prices. Be sure to check if the location you have chosen has had significant increases in the value of housing stock over the last few years.
As long as you hold on to your property and see it as a long-term investment and you are able to keep up with your mortgage repayments, a 100% buy to let mortgage is an option that is worth considering. It is an invaluable means of adding to your property portfolio without having to worry about deposit.
A 100% buy to let mortgage is a type of loan that matches the total purchase price of your property and does not require you to put down a deposit. There are different forms of 100% buy to let mortgages: fixed, discounted, capped and variable rate. A 100% mortgage is extremely helpful if you want to obtain properties without being overwhelmed with the need to make a substantial deposit. In the typical scenario, the lender will loan you the full amount and you pay it back plus the interest over a certain span of time. The payment period may be spread out over twenty to twenty-five years.
With this type of mortgage, lenders will typically ask you to provide proof that you can afford the mortgage repayments. If you have a spotless credit history, then getting a 100% buy to let mortgage will not be difficult for you. But even so there are rare instances when a lender would choose to provide such loan for a borrower with poor credit rating. For some people, this type of mortgage is used to release the equity in their properties and subsequently use the money to consolidate their debts.
One of the most notable characteristics of 100% buy to let mortgages is the risk of negative equity. This is when the value of the property drops and becomes lower than the loan amount. Negative equity normally occurs when the property market takes a dip. This often leaves lenders in a precarious position thus they charge higher rates of interest on the mortgage than for a loan where a deposit is made. If you have a 100% buy to let mortgage, the lender may also require that you pay a mortgage indemnity premium.
When your property falls into the negative equity trap, it is never a wise move to sell it because the value will not be able to cover your mortgage. To avoid the negative equity risk, it is important that you do your research beforehand and ensure that the property you are interested in buying is not in an area that´s likely to experience a downturn in property prices. Be sure to check if the location you have chosen has had significant increases in the value of housing stock over the last few years.
As long as you hold on to your property and see it as a long-term investment and you are able to keep up with your mortgage repayments, a 100% buy to let mortgage is an option that is worth considering. It is an invaluable means of adding to your property portfolio without having to worry about deposit.