BUY TO LET
New or experienced landlords
A buy-to-let or buy to rent mortgage is a type of mortgage specifically for properties that are owned or purchased with the intention of renting them out. They're often set up on interest-only bases, which means you only make monthly interest payments each month. The outstanding loan balance - i.e. the amount you borrow - is paid back at the end of the mortgage term via a suitable repayment vehicle, like the sale of the property.
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New To Buy To Let?
Buy to let property is one which is rented out to tenants and is purchased with the sole intent of renting . Before considering this as an option you will need to weigh up all the pros and cons and also seek tax advice before you take the next step. Find a property to let out requires time, planning and money. It is also essential you know what rental income you will be able to charge on the property as this will dictate the profit you will be able to generate from your investment. A buy to let mortgage is a mortgage taken out on this type of property. You will not be able to apply for a residential mortgage if you intend to rent the property privately.
To assess whether a buy to let property is a good investment there are various factors which you need to consider such as rental yield and potential capital growth.
Rental yield measures the ongoing return you are getting on your investment property. It is a good indicator of how well your investment is performing.
Capital growth is known as the appreciation of the property value is it increases or decreases overtime. This can be difficult to predict and can fluctuate as the market changes. A buy to let mortgage is specifically designed for buy to let property investments. It allows you to borrow a sum of money to purchase the property would you then plan to rent out. Buy to let mortgages differ from residential mortgages in that they usually require a bigger deposit and have a higher interest rate. The buy to let mortgage can also vary greatly depending on many different factors and lenders use rental affordability calculation to determine whether it is financially feasible.
To calculate this they will use both your personal income and potential rental income amounts against the amount you wish to borrow. It is common these days for most lenders to require at least 145% of the monthly mortgage payments house rental income on an interest only basis.
To be successful with a buy to let mortgage application you must meet certain eligibility criteria. Most lenders have a minimum personal income requirement which is often around £25,000 per year.
Becoming a Landlord
Becoming a first time landlord can be tricky and complex however there are rewards for doing so. Here is a brief guide to some of the considerations you might need to think about before becoming a first time landlord.
Your rental income or yield as it's sometimes called is the amount of money you earn as a percentage of the total value of the property. When assessing affordability of a buy to let mortgage this is used by the lender to determine the success of an investment. The higher the rental yield the higher the profit you will make from your investment but anything expecting too high a yield maybe unrealistic.
The amount of money you will make depends on how much rent you charge at how many expenses you will have to deduct. The profit from the investment mainly is from rental income but there also may be an opportunity to benefit from the increase in equity from the property. It may be useful to look at the government website so you can work out how much rental profit you can generate and how much tax you will have to pay on the income.
When you become a landlord there are many new responsibilities you will take on
As a landlord you will be responsible while maintaining the property and keep your tenants secure and happy.
Sometimes it's a good idea to use a rental agency as they can take care of many of the operational aspects of this for you however they do charge a fee. You must also make sure you have all the insurances in place, supplied furniture and appliances are in good condition. It is also a good idea to research any additional legal aspects of owning a property for renting. It is also a good idea to know what is your responsibility and those of your tenant as it is likely they will be responsible for paying things like council tax and utility bills.
Advice and help
If you would like advice and help please feel free to get in touch so we can discuss the options through with you.
or alternatively, call us now on 01803 303909 to speak to an advisor.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Some buy to let mortgages are not regulated by the Financial Conduct Authority.