What is a Buy To Let Mortgage?
These mortgages are specifically designed for private landlords and property investors: people who won’t take up residence inside the properties they purchase.
It can be risky to buy extra properties for renting and getting some extra income on the side. It’s also complicated, since you have no way of knowing whether the prices will shoot or plummet. Neither do you have any way of knowing if your income will be continuous.
On the other hand, it definitely pays to have tenants paying you a sum every month over a long period of time. You must, however, consider all the rewards and risks that come with a ‘Buy to Let’ scheme.
Will a Buy To Let Mortgage suit your needs?
Before buying a rental property, you need to decide if you’re doing this for capital or for income. Are you hoping for monthly sums or are you hoping for long-term profit? Will you sell the property later for a profit, given the property value increases? Your justification behind the purchase of this property will directly affect the kind and location of the property you’re buying. You’ll also be looking at all the risks involved, given that there are no guarantees for a hike in the property value.
If it isn’t possible to buy the property, you can go for a Buy to Let Mortgage. There are key differences between a standard mortgage and this one.
A lender will generally consider the potential of renting and your gross income before lending you the mortgage. The income might not be considered in certain cases.
Usually, a minimum of 20% to 30% of the property’s value is required as deposit, which is often higher than the deposit required for other types of mortgage, and you can expect Buy to Let mortgages to have higher interest rates applicable to them. It’s worth also mentioning that, as of 1 April 2016, there is an additional 3% in Stamp Duty to pay if you are buying a second property whether as a home or for purpose of letting.
Things to Consider…
As well as mortgage costs, potential landlords should carefully consider the costs of owning the rental property itself. These additional costs may include:
· Property Upkeep. The maintenance of the property, including appliance repairs and redecoration costs prior to letting the property.
· Agent Fees. Although variable, the fee for letting agents is normally around 10% of the overall monthly rent. These costs can be higher if you’re hoping to be in charge of the full management of the property—which can reach to 15%.
· Service Charges.These costs, such as ground rent, apply only to leasehold properties.
· Legal insurance.There are certain events (such as non-payment of rent and anti-social behaviour that results in property damage) when you’ll need legal insurance to cover eviction costs.
· Insurance of Contents. Any contents that go with the building (such as furniture) will require insurance as well. This is meant to be part of the rental agreement.
· If you’re planning to let a furnished property, you’ll have to consider the cost of the items you wish to provide.
· There’s a need to inspect certain appliances (such as gas boilers) from time to time, in order to ensure their safety and compliance with regulations.
When you’re choosing a letting agent who’ll act on your behalf, go with someone who is an Association of Residential Letting Agents (ARLA) member. All ARLA members are participants in a bonding scheme that protects both: tenants’ deposits and rental income.
You can visit the ARLA website at http://www.arla.co.uk. Please note: When visiting this site you will moving to a website not regulated by the Financial Conduct Authority. We give no endorsement and accept no responsibility for the accuracy or content of any sites linked to from this site for further information on becoming a private landlord.
‘YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP ON YOUR MORTGAGE’
‘SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY’