What is Buy to Let?
Previously, buying a property to produce an income was considered by lenders to
be a commercial undertaking. Therefore mortgages, on property intended to be a
buy to let, have in the past attracted higher interest rates than those
available to owner-occupiers. Also, rental income was not usually allowed to be
considered in the assessment of a borrowers ability to repay the mortgage.
However a great deal has changed in how buy to let mortgages are structured and
lenders are now more prepared to provide a much more flexible approach to
lending criteria and interest rate charges.
Contact us today and see for yourself how you can achieve your objectives with
our assistance providing a broad view of the Buy to Let mortgage market and
also a unique range of mortgage products.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
THERE WILL BE A FEE OF UP TO 1.5% FOR MORTGAGE ADVICE. THE PRECISE AMOUNT WILL
DEPEND UPON YOUR CIRCUMSTANCES, BUT WE ESTIMATE THAT IT WILL BE 0.3% OF THE
LOAN VALUE.
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Buy to Let what to do and what
not to do
DO - Ask the
advice of a local letting agent on local rental market demands.
Ensure that you employ a suitable Solicitor.
DO - Consider
a buy to let property as a medium to long term investment.
DO - Furnish
and decorate to a high standard. Good quality bathrooms and
kitchens will attract the best tenants and help you to let
quickly every time.
DO - Make sure
your sums add up. Ensure that the rent will cover mortgage
payments and other costs, even if you have periods without
tenants?
DO - Make sure
that you insure the property properly and that the Insurer
is aware that the property is on a let basis or else you could
find that you have NOT actually covered the property
DON'T - Buy
anything with intensive maintenance problems. Large gardens
add little to the rental value and will cost you a lot to
maintain.
DON'T - Allow
your own personal taste to influence your decisions. Ensure
the property you choose matches the local market needs.
DON'T - Use
off-the-shelf tenancy agreements from stationary shops. Ensure
your paperwork suits your circumstances.
DON'T - Forget
to issue the right documents or fail to have a condition report
or proper inventory made before a tenant moves in.
DON'T - Leave
the running of your property to friends or relatives when
you are away. Tenants will need a proper management service.
DON'T - Use
second hand furniture or old soft furnishings. You have to
abide by the Furniture and Furnishing Regulations.
Mortgages for Buy to Let
There is not much difference between a Buy-to-Let mortgage and a standard
mortgage for normal homebuyers. Buy to Let mortgages are subject to the usual
status checks. Generally Buy to Let mortgages are available for between five
and 45 years and for up to 80% of the property value. Multiple property
purchases are also allowed.
Through the Buy to Let scheme, the rental income you get for the property can
be taken into account.
Generally, lenders will expect landlords to use a letting agent to manage the
property and for the tenants contracts to be drawn up as Assured Shorthold
Tenancies or as a Short Assured Tenancy.
The right mortgage product appropriate to your buy to let needs requires
professional help there being such a wide range of options available today but
there is also a great deal to know about when it comes to down to reading the
small print of lenders products.
It is therefore vital that your present and long term objectives are discussed
with those who understand the market place and who will be able to guide you
through the buy to let mortgage maze.
Insurance cover is also available to protect the rental in the event of a
defaulting tenant, and for legal expenses as well as the usual building and
contents insurance.
You should also consider the additional costs involved. Letting agent's
commission, insurance premiums for building and contents cover as well as
rental and legal expenses cover, the costs of keeping the property in a
lettable condition, service charges and ground rents if the property is
leasehold. The tenant is responsible for such items as utility bills, Council
Tax and TV licence fee, etc. You may be able to make taxable deductions against
the rental income for the costs such as insurance, cleaning, gardening, agent's
commission and other reasonable expenses including the lenders loan interest
charges and fees.
The cost of furniture, fittings and fixtures is not deductible, but subsequent
replacement can be claimed or a wear and tear allowance of 10% of the rents
received may be deductible.
Lending policy and procedures
Things have now changed and many lenders consider that the private rented sector
should be encouraged. Lack of choice between renting and buying is generally
considered to be bad for the economy and may even have contributed to the booms
and busts in the housing market over previous years.
Now, changes in the lending criteria and lower interest rates are available,
which can make Buy to Let an attractive opportunity for private investors.
Gross returns or the rent received before taking account of the costs incurred
such as management fees, maintenance, service charges, ground rents and
insurance, can vary between approximately 7% and 10%. Expensive properties may
produce a lower return than cheaper ones.
The average rental return in the UK tends to remain at approx. 10% and many
experts in the industry believe that capital appreciation is likely to be
higher than inflation for the foreseeable future.
Generally, your gross rents should be between 130% and 150% of your monthly
mortgage repayment.
Buying a property to let is different from buying your own home. Try getting
advice from an experienced letting agent who will know the local market and
where the demand lies. Maybe two-bedroomed flats, or four bedroomed houses are
more popular, or properties close to transport links or schools would be a
better investment.
You should also consider the selection of tenants, will they pay their rent on
time, leave the property at the end of the tenancy and leave it in a proper
state? What about the day to day management of the tenancy?
Armed with suitable advice, Buy to Let investors can start looking for a
suitable property. Once a property has been found, the letting potential can be
assessed, what rent may be achievable in the local market and whether
re-decoration and new fixtures and fittings are needed to attract good tenants
and to avoid the chance of long empty periods.
Before buying any property firstly find out about your mortgage needs and what
it means in cost terms to become a property investor and Landlord.
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