A buy-to-let mortgage is a type of commercial loan secured against a residential property which is let out to a tenant by a landlord. Buy-to-let mortgages are not regulated by the FSA so care should be taken to choose the most appropriate product to suit your needs.

Buy-to-let mortgages first came into existence in the mid 1990s when a group of lenders began to offer mortgage products to landlords. The lenders were Mortgage Express, Paragon Mortgages, The Mortgage Business, Birmingham Midshires, GMAC RFC, and Natwest. These lenders also comprise the Association of Residential Letting Agents (ARLA).

Buy-to-let mortgage products are specifically designed to finance residential properties which are rented out by landlords to tenants. This type of product is similar to commercial mortgages for several reasons including:

• They are assessed on the ability of a property to generate income
• They are assessed against a business proposal rather than an individual
• They are not regulated by the Financial Services Authority (FSA)

A rental assessment is carried out on a property when an application for a buy-to-let mortgage is submitted along with the usual valuation by a professional surveyor. The rental assessment helps the lender determine whether the property is worthy of securing a buy to let mortgage product against and, if so, what the maximum value of the loan should be.

Historically lenders required the expected rental income to cover 130% of the monthly mortgage payment, but this criterion has been relaxed in recent years. Similarly, buy-to-let mortgages were traditionally only issued to a maximum loan to value ratio of about 80% but this requirement has also been relaxed in recent years, leading to a situation in which property investors require a smaller deposit to purchase buy-to-let properties.

Despite the lack of regulation of buy-to-let mortgages, investing in property is a serious commitment that carries some risks. It is therefore vital to secure the right buy-to-let mortgage products against properties which are let out to tenants. If you require finance for an investment property contact an independent advisor today through Buy-to-Let Mortgage Source and receive impartial advice on buy-to-let mortgages.