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Buy to let mortgages
are much easier to obtain now than 5 years ago.
Most lenders offer some kind of
buy to let
mortgage option to either purchase or
remortgage an investment property. But all of
these deals are not the same and the lending
criteria and eligibility rules change from
company to company.
If you are
looking for buy
to let mortgage advice let please
contact us. We
are a mortgage broker and advise solely on buy
to let mortgages and investment property. We
will be able to recommend the most suitable buy
to let scheme for your buy to let needs.
Whether you are
looking to buy your first house or wish to
re-finance an existing buy to let portfolio
please contact us.
Buy to let
mortgage advice
This is not intended as a detailed guide, and people thinking
of purchasing a Buy to Let property should seriously consider taking expert
advice about - legal, tax, financial and property management matters.
This leaflet is for people who are thinking of buying a
property to rent with a "Buy to Let" mortgage and who
may have little or no previous experience of investing in the private rented
sector. The leaflet describes "Buy to Let", and some of the things you need to
bear in mind when choosing a property financing your purchase managing your
property considering what your costs will be
WHAT IS BUY TO LET?
Buy-to-Let" is a form of residential
investment where you buy a property, usually with the aid of a
mortgage, and
rent it out. The 1988 Housing Act made investment in residential property more
attractive to landlords when it introduced a new type of tenancy giving
landlords more control over their properties and there has been a modest
recovery in the private rented sector since then. The increased availability of
loans at attractive rates of interest for Buy to Let purchasers, has also
increased the appeal of owning rental property.
When you buy a property to let out, you are becoming a
landlord. And owning investment property is not like owning your own home.
Instead you are effectively running a small business. Before you choose a
property and arrange the finance to purchase it, there are a number of factors
you should look into, which are described below.
Researching your market
You should carefully research the market where you want to buy your property.
You can either do this yourself or employ a specialist letting agent to help you
find the area and property you are looking for. If you research the market
yourself, you will need to gather information from estate agents, local papers,
local employers and even the local authority, about the demand for and supply
of, rented housing.
Choosing your location
You should also look at how close the property is to local amenities such as
shops, transport and schools, and are these the type of amenities that are
important to your tenants? So, if you are aiming to let your property to say a
family with school-age children, how close the nearest schools are, will be an
important influence on where they choose to rent.
Finding your tenants
You will also want to think about the type of tenant you are aiming to attract.
Are you hoping to attract single people, or families, as they will have
different requirements from the home that they choose to rent? It is important
to remember your property should have features that are attractive to would-be
tenants, rather than would-be purchasers.
Choosing your property’s size and condition
Equally, you should think carefully about buying a property whose size is
attractive to households looking for rented accommodation in that location. As
well as the size, type and location of your property, what about its condition?
Have you assessed whether the property will require expensive maintenance.
Generally speaking, older homes require more attention.
Choosing a property you can afford
Obviously, the size of mortgage you can afford will have a major influence on
the size and location of your property. Choosing a mortgage is described in more
detail in the section below. And finally, in considering how much to spend on a
property you should bear in mind that as well as increasing in value, your
property can also fall in value.
MANAGING YOUR PROPERTY
Your responsibilities
When you have chosen a property, you will need to decide who will manage it for
you. If you manage it yourself, you will be responsible for
• finding tenants
• checking tenants’ references
• collecting the rent and maintaining the property
• and dealing with problems
Your legal responsibilities
You will also need to be aware of your legal responsibilities as a landlord such
as -
• carrying out repairs
• ensuring the safety of gas and electrical appliances
• and ensuring that the furniture and furnishings meet fire safety requirements
You should also consider familiarising yourself with landlord and tenant law, to
understand your responsibilities as a landlord, and the rights your tenants
enjoy. This is an area you may wish to take legal advice about. The Department
of the Environment, Transport and the Regions (DETR) have published a useful
guide for landlords in England and Wales called "Assured and assured shorthold
tenancies" which is free from the Department of the Environment Transport and
the Regions and can be obtained on 0870 1226 236.
When your property is empty
You should remember there may be periods when you are unable to find tenants for
your property and it will be empty, with no rental income coming in. Obviously
you will still be expected to continue repaying your mortgage so you will need
to think about how you will meet your mortgage repayments in these
circumstances. This could particularly apply if you choose a property in an area
where the supply of rental property exceeds demand from tenants.
Maintaining your property
As well as managing your property, you will be responsible for maintaining it.
Besides repairs and regular maintenance, properties can benefit from routine
improvements which maintain their attractiveness with would-be tenants. You may
find that your property is in need of an overhaul after a tenancy finishes.
Naturally, you will have to finance this yourself. What is more, your property
is likely to be empty and you will not receive a rental income, while your
property is being improved.
Using a managing agent
Given the number of different responsibilities you face as a landlord and the
limitations on your own time, you may wish to use a managing agent to look after
your property for you. This will cost you approximately 10% 15% of your monthly
rental income.
CHOOSING A MORTGAGE
Paying for your property
Obviously, when you choose a property, you will need to ask yourself how much
you can afford to pay, and how you will pay for it? If you take out a mortgage,
you should work out what percentage of the value of the property you need to
borrow. Typically lenders allow people to borrow up to 80% of the property’s
value. The size of the loan is usually linked to the expected rental income. As
a guide, your lender will expect your monthly rental income to be 25%-50%
greater than your monthly mortgage payments.
Your choice of mortgage
When you choose a mortgage, your choice will be between a repayment mortgage or
an interest-only loan. With an interest only mortgage, some lenders may require
you have a suitable investment product. If you have a repayment mortgage, some
lenders may also advise you to arrange life insurance alongside your loan.
You may be able to choose between fixed rate and variable rate mortgages. Fixed
rate loans will give you some certainty about your mortgage repayments whilst
variable rate loans could move up or down. You should also remember that your
mortgage payments could rise if interest rates rise, depending on the type of
mortgage you have.
But before choosing your mortgage, you should consider taking advice from your
lender or a mortgage broker.
WHAT WILL YOUR COSTS BE?
As well as your mortgage payments, you will need to pay for -
• buildings insurance
• consider contents cover, if your property is furnished.
• maintenance costs
• periods when you are receiving no rental income because the property is empty
or the tenants have fallen behind with their payments
• mortgage repayment increases because of interest rate rises, which you may not
be able to recover immediately from rent increases
Your tax liability
Before you can calculate what your income from your property will be after
taking into account all necessary expenditure, you should recognise that the
profits from renting property are taxable. However, you will be able to offset
some of the costs you incur as a landlord against tax.
You will have to pay the following taxes
• Income tax
• Stamp Duty when you buy your property
• and Capital Gains Tax when you sell it
You can find out more about the tax treatment of income from
rented property in Taxation of Rents: A guide to Property Income. IR150.
THIS LEAFLET IS FOR INFORMATION ONLY. THE RESPONSIBILITY FOR PURCHASING A BUY TO
LET PROPERTY RESTS WITH THE INVESTOR. May 2006
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