Buy to Let

Why Buy to Let?

Buy to let mortgages have come of age. Many home owners have direct experience of profiting from property, a buy to let mortgage enables you to benefit from rising property values and have your mortgage paid at the same time.

Buying to let is no longer the domain of rich landlords, the prospect of buying and letting a property is now within the reach of many peopleWith interest rates at historically low levels, and stock markets uncertain, investing some money into property can make sense.

Like any investment a property that you buy to let has its risks and rewards. If you take advice and plan your buy to let carefully the risks can be minimised.

Buy to let mortgages enable the investor to benefit from capital gearing. You invest a relatively small fraction of the value of a property, but you benefit from the capital growth of the full property value.

For example:

  • Property value £100,000
  • Deposit £20,000
  • If property rises in value by 5% p.a.
  • Value after 1 yr. £105,000
  • Gross profit £5,000

which represents a return of 25% on your investment!

This example assumes that your mortgage costs and expenses are covered by rent received. The costs of buying and selling are omitted.

Where to Buy to Let

An important consideration is to be sure that the property is suitable for letting. Is there good demand for accommodation to let? Consult several local letting agents and ask there opinion, find out what is the going rent. If you find a responsible letting agent you might prefer that they manage your property.

Consider the worst case scenario, what if you cant find a tenant, what if the tenants decide not to pay, what if they damage your property. These are all questions a good letting agent should be able to answer.

How to Buy to Let

If you do not have the funds to purchase a property outright then you will need a mortgage. Where previously borrowers were restricted to commercial mortgage lenders, nowadays the buy to let mortgage marketplace is quite competitive and the lending rates approach those of the mainstream lenders.You will need a deposit of at least 15% for a buy to let mortgage and additional funds to cover survey fees and legal expenses.

Another option to consider is a ‘let to buy’ mortgage where you let your current home and buy another at up to 95% loan to value, if this is of interest complete the Quick Quote

All lenders will require you to have an income, this gives the lender piece of mind that the mortgage will be paid even if there is no tenancy in place. Some buy to let lenders require that your income covers both your existing property and the let property. Other lenders just require that the rent covers the mortgage payment by a set percentage.

You can buy to let several properties, a strategy often pursued by professional landlords is to buy properties one by one using the equity in the previous property as deposit for the next.

Buy to Let costs

As the landlord, you will be responsible for the upkeep of the property, and the tenants may reasonably expect you to foot the bill for any repair work. The costs for this must be taken into consideration when you set the rent.Letting agents will commonly charge 10-15% of the rent as management fee.

As well as your buy to let mortgage there will be associated insurances to consider, for example life and buildings insurance.

Finally, be aware that the inland revenue regard any net income or gains as taxable. Information regarding the treatment of income tax can be obtained by requesting the following booklets:

  • IR87 Letting and your home
  • IR150 Property income and taxation

Other information

The Department of the environment publish a booklet titled 'Tenancies, a guide for landlords', it is available free by phoning 0870 122 6236

Buy to Let and Let to Buy Mortgagees

A buy to let mortgage is a loan for purchasing or refinancing residential property which is let to tenants rather than lived in by the borrower. Classed as a business transaction, rates and fees are typically higher than those you would find with a standard residential mortgage.

How much deposit is needed for a buy to let mortgage?

Interest rates on buy-to-let mortgages tend to be higher than residential ones.

The minimum deposit for a buy-to-let mortgage is usually a quarter 25% of the property's value, some lenders offer deals with a 20% deposit,

The lenders interest rate together with the lenders setup fees tend to be higher.

This is a changing market, best to call us with your personal requirements to check the availability of the amount of mortgage available, as this normally is linked to the rental income archivable on the investment property, now linked to affordability.