Buy To Let Mortgages
Becoming a private landlord should not be seen as an easy way of making money. It can be risky and complicated. It can also be very time consuming, more than most forms of investment and there is no guarantee that house prices will rise. That said, having a second property to let to tenants could reap considerable financial rewards over time. We always recommend you seek advice from a tax specialist in advance of entering the Buy to Let market.
There are 3 main differences in buy to let mortgages:
- Rent Potential – the decision as to whether or not a mortgage will be offered is usually based on the rent you will earn as well as your income. In some instances your income is not considered.
- Interest Rate – buy to let mortgages traditionally have had slightly higher interest rates and product fees.
- Larger Deposit – typically a minimum of 20% – 25% of the property’s value is required as a deposit.
When buying a property to let you will need to consider your primary objective. Is it income, capital growth or a combination of these? In other words, are you looking to make a profit month on month or are you looking to make a profit through increased equity from the property, if it increases in value over time? The decision may affect the type of property you purchase and the location.
When you manage a property there are many costs in addition to the monthly mortgage repayments. As a guide, you should be aiming to achieve a gross rent of about 145% of the rental property’s interest only mortgage repayments. This is in order to cover your costs should anything go wrong.
WATCH THOSE ADDITIONAL COSTS
- Property upkeep – maintenance costs for the property.
- Letting agent’s fees – letting agents charge around 10% of the monthly rent for finding and vetting tenants with an additional cost of around 5% if you require a full management service.
- Ground rent / service charges – applicable to leasehold properties.
- Legal insurance – to cover costs of evicting tenants in the event of non-payment, very important, as this can be very expensive.
- Insurance – building insurance and contents insurance for the items provided as part of the rental agreement.
- Furnishings – the purchase of any furniture. If the property is to be let furnished, make sure you are covered for this by your home insurance.
- Gas / electrical appliances – cost of maintaining appliances and ensuring they comply with any regulations such as safety tests.
- Decorating costs – the property may require work ranging from painting to a new bathroom suite before it is suitable for letting to tenants.
When choosing a property to let, it is wise to take advice from local letting agents to determine what types of properties are in demand. They will have local knowledge as to which parts of the town are best or in greatest demand. For example, they will know if there is a student population and if so, the type of accommodation they require and can afford.
Our standard fees are as follows;
For establishing your needs, undertaking research and making a recommendation, we charge a fee of £595. Our fee becomes payable when we provide you with our recommendation(s).
If you choose to proceed with our recommendation and the mortgage goes ahead, we will also be paid commission from the lender for arranging the mortgage on your behalf.
The Financial Conduct Authority does not regulate most forms of buy to let mortgage.