If so, a buy-to-let mortgage might be the right mortgage for you.
Instead of looking at your income to determine if you can afford a mortgage, a buy to let mortgage lender looks at the rent potential of your property when giving out buy to let loans. Your expected rental income must exceed your mortgage repayments by a certain percentage (usually 25% more than your repayments). This buffer is intended to cover any unexpected costs you come across as a landlord, such as vacancy periods, tenants who don’t pay, and maintenance costs.
Some buy to let mortgage lenders only require your rental income to match your repayments at 100%, but this privilege is usually reserved for professional landlords who already have a large amount of successful buy to let properties in their portfolio. Additionally, some lenders will take your normal income into consideration as well as your projected rental income, which could potentially allow you to borrow more money or get a better deal.
Your lender may require you to provide a letter from a letting agency that confirms your expected rental income. You should get quotes from 3 different letting agencies to make sure you are getting a reliable quote. Some lenders will also want to establish if your property is a good long-term investment before they offer you a loan.
You can’t get a standard mortgage if you plan to let your property.
If you are looking to rent out your UK holiday home, please see [holiday home to let mortgages]. If you want to rent out your overseas property, please see [overseas mortgages]. These mortgages are slightly different and require alternate criteria.
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Yes. Lenders may loan you money for multiple properties, but this is not usually an option for first-time buyers. 97% of buy to let properties are owned by landlords who own over 5 properties. 13% of landlords have over 100 properties in their portfolio.
If you have a portfolio of properties, make sure the lender looks at all your properties so that they can compare your previous purchases and offer you the best buy to let mortgages.
You also have the option to consolidate all your buy to let mortgages under one roof if you own multiple properties. Speak to a [professional mortgage adviser] about the advantages of keeping all your buy to let mortgages with the same lender. An adviser can also tell you if any lenders restrict the number of properties you can have in your portfolio and/or the total amount of money you can borrow.
If you are purchasing your first buy to let property, you should start with just one property. Once you have the business under control and you understand the duties of a landlord you can look for your second property. Most buy to let investors take at least 2 years to build up a portfolio of 5 properties.
These days there is a wider selection of mortgage options for buy to let borrowers, including fixed rate, tracker, discount, and flexible options. Your lifestyle will dictate what options you decide to use with your mortgage.
Most buy to let mortgages are offered with interest-only repayments. This not only keeps the mortgage payments lower each month, but also is tax efficient since interest costs on your mortgage are deductable. The majority of landlords secure their buy to rent mortgage with the intention of selling the property at some point. They focus on the long term advantages of the property – it’s not as important to pay off the capital debt as it is to benefit from the capital growth.
Probably. Buy to let mortgage rates are sometimes offered at a premium rate. However, the rate will depend on your deposit and arrangement fees.
You will usually face higher arrangement fees for a buy to let mortgage. These arrangement fees are normally calculated as a percentage of your loan instead of a fixed price, which could get quite expensive if your house has a high property value.
You will most likely also have to pay a bigger deposit (15% of the property value or more). However, you’ll be offered the best buy to let mortgage rates if you pay a higher arrangement fee and a bigger deposit.
Yes. There are a couple of advantages in remortgaging your buy to let property. If you take out a mortgage on a property and build up equity over time, you can remortgage that property in order to raise a deposit for the next. Many landlords do this to help build their property portfolios.
You can also get a buy to let remortgage to improve your property. If you have any expensive maintenance work, improvements, or refurbishing that needs to be done, you can exchange some of your equity for cash by remortgaging. This can greatly help with all the costs you have as a landlord.
As long as you do your research and keep a close eye on your finances, you can most likely profit from a buy to let property. A buy to rent property seems very easy in theory – all you do is put down a deposit and the rent will cover your repayments. However, actually running a buy to let property is much more difficult than it sounds, so you need to plan ahead and treat your property as a business deal. You have to rely on your rental income (which you won’t make if you don’t do your research).
The main thing you have to keep in mind is that renting out a property is not a “get rich quick” scheme. You need to commit at least 5-10 years into your property in order to make returns. However, your time and perseverance can lead to great success; 1 out of every 4 landlords have made 30% returns from renting out their property in the last two years. Make sure your property will be in demand in the long-run and that you can make adequate returns.
The current housing climate is actually benefiting buy to let landlords. With soaring house prices, less and less first-time buyers are able to purchase a home. These would-be buyers are becoming renters since they need more time to raise funds for their home. Additionally, the UK is facing changes that are increasing the demand for rented property – there are more students attending university, people are staying single longer, employees are working in mobile jobs, and more people are entering the country through immigration. Most of the people in these categories are much more likely to rent than purchase a house.
To insure the greatest profits, make sure you budget for the tough times. You need to cover your repayments when you have vacancy periods and plan ahead for any maintenance work the property requires. Think about what you’ll do if you run into trouble. There are several options available, such as selling the property, raising the rent, making changes to the property to make it more appealing, or changing the property to attract a different type of tenant.
Keep in mind there are agencies and guides that can help you, especially if you are getting your first buy to let property.
First and foremost you should speak with a letting agency. If you have found a property you are interested in buying, a letting agency can figure out the value of the property based on the location, demand, and other valuation factors. If you don’t have a property in mind, a letting agency can tell you the locations where there are demands for rented properties. They can also tell you the target demographic for the area, the type of property that is most appealing, and how much rent you can charge.
If you use a letting agency, look at the Association of Residential Letting Agents (ARLA) – an organisation of qualified letting agencies which also has a panel of mortgage lenders offering buy to let mortgages at competitive prices (these lenders include BM Solutions, GMAC Residential Funding, NatWest Mortgage Services, The Mortgage Business, and Paragon Mortgages).
Employing a letting agency is not cheap, but it can save you precious time and take a great deal of stress off your shoulders. Some lenders may even require you to use a letting agent. Letting agencies charge a percentage of your property’s annual rent. For approximately 10%, a letting agency will find tenants, check tenants’ references, and set up tenant agreements (Assured Shorthold Tenancy Agreements). For 15% or more, a letting agency will also take on full management of your property by collecting rent, dealing with maintenance issues, and keeping track of the property inventory.
Once you find your property, you need to find the right mortgage. Buy to let mortgages are offered by both specialist and mainstream lenders, but a fair amount of deals are only available through buy-to-let mortgage brokers (a type of adviser). Since buy to let mortgages are more complicated than standard mortgages, specialist lenders only want to work through qualified advisers. If you would like access to more mortgage deals and compare buy to let mortgages, fill in this short form and a professional mortgage adviser will call you to assess your financial situation and find you the best deal available from the lender who best suits your needs.
For free guides about factors you need to look into before getting a buy to let property, check out some of the following references:
You need to do your research before buying your property. You’ll need to gather information from estate agents, local employers, and local papers in order to determine the demand for rented property in the area. Figure out how much competition you have by looking at how many rented properties are already available locally.
Next, take a good look at the location. Are there stores and schools close by? Is the property accessible by public transportation? Your location will need to match the kind of people you are targeting as tenants. If you’re looking for family tenants, are there local schools? If you are targeting single tenants, are there clubs and shopping areas close to the property?
Once you’ve determined your location and target tenant, think about the size and condition of the property. If the house is a fixer-upper you’ll need to consider how much you’ll have to spend on maintenance work. You also need to think about whether to furnish the property or not. Students and recent graduates are more likely to look for a furnished place, but families and established workers most likely have their own furniture. Keep in mind whenever you are painting or furnishing the property that you need to keep the interior looking neutral. Use simple colours and minimise any furnishings and gadgets. Remember, you are not buying the house yourself – you are trying to attract tenants who most likely have different designer tastes than you.
If you’ve settled on a property, spend a lot of time going over your finances. Your rent will have to cover your repayments, so you need to figure out whether you can afford the property (remember you may have vacancy periods, especially when first setting up). Since the finances involved with buy to let mortgages are fairly complicated, you should speak to a professional mortgage adviser who can go over your finances with you and help you take out an affordable mortgage.
You will also have to decide whether or not to use a letting agency. Two-thirds of landlords have another full-time job or alternate source of income which leaves them little time to deal with landlord responsibilities. A letting agency can save you valuable time, but remember that they do come at a cost.
You will be responsible for finding tenants, checking tenant references, collecting rent, dealing with any problems (either with tenants or with the property), carrying out repairs, routinely checking gas and electrical applications for safety, and making sure everything in the property meets safety regulations.
You need to be very organised with your finances and consider the following costs:
You should always have 6 months worth of rent saved in case you have a vacancy period or have to repair or replace anything expensive in your property.
You may want to join your local Landlord’s Association. This association offers you help with legislation changes, paperwork, and tax issues. Membership usually costs £100 a year.
Since there are a number of costs you may not know about, an adviser can be an invaluable help in organising your finances. You should at least speak to an adviser about taxes since owning a buy to let property will influence your tax payments.
You may be able to save money on your taxes by taking out a buy to let mortgage. Purchasing a property for renting purposes allows you to deduct certain costs such as interest on your mortgage, rental insurance, letting agency fees, maintenance expenses, professional advisory costs, advertising fees, cleaning costs, and 10% of rental income per year to cover wear and tear on the property and/or furnishings.
Rental income is taxable, but your deductable costs could greatly lower your tax payments.
For tax purposes keep essential documentation for tenant deposits, rental payments, repayments, proof of the property’s purchase price, and mortgage completion documents. Speak to an accountant who can handle your taxes and recognise all the costs you can deduct from your tax payments.
You are liable for Capital Gains Tax when you sell the property.
For further information, see the Inland Revenue booklet IR150, Taxation of Rents: A Guide to Property Income at: www.hmrc.gov.uk/nonresidents/fagir150.shtml.
There are several types of insurance you might want to consider, but make sure that any insurance you take out covers buy to let properties. Think about getting building insurance, contents insurance, legal expenses cover (in case you have to take a tenant to court), and rent guarantee insurance (this protects you in case a tenant doesn’t pay or if you have a vacancy period - you can guarantee your rental income for a fixed period, such as 6-12 months).
Just fill in this short form and a mortgage adviser will contact you to answer all of your questions, give you buy to let mortgage advice, and get you on your way to buying your property.
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