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Buy to Let Mortgage
Introduction

Buy-to-Let is a joint initiative by the Association of Residential Letting Agents (ARLA), and the mortgage lenders. The scheme is designed to help private individuals to invest in property to let without being penalised by paying commercial rates of interest
Buy to Let mortgages are not regulated by the FSA, Financial Service Authority so you have less protection in the event that something goes wrong. It is imperative therefore that you seek the best advice available which Mortgages Expert are able to offer. That said there is plenty of interest in and good returns when considered as a long term investment.

Attraction of Buy to Let

Buy to let has become attractive for a variety of reasons

  1. UK Property over the long term has always risen in value therefore offering a great long term investment in capital
  2. Rental income should cover the monthly interest debt
  3. In the right locations there is a high demand and therefore a large number of tenants for rental accommodation based upon the changing demographics of the UK.
  4. Most relevant to the rise in buy to let mortgages is the change from commercial mortgage status which had reduced the cost and therefore made it more affordable

Buy to Let Mortgage Factors

Before looking at a property landlords should do the maths considering the following factors

  1. Deposit - Buy to let mortgages generally need a deposit of at least 25% but more lenders products and therefore better rates are generally only available for deposits of 40% and over.
  2. Rent Potential - Mortgage lenders are looking to see that the potential rental income is 125% of the mortgage payment, though some lenders will consider a lower percentage
  3. Higher Interest Rate - Buy to let mortgages generally have a slightly higher interest rate
  4. Additional Costs - These are highlighted below additional costs
  5. Void periods - Ideally your property will be let all year round but there maybe times that you property is empty for maybe a month maybe longer but the mortgage still needs to be paid.
  6. Taxation - Any profit is taxable as an additional part of your income so potentially at 40% if you are a high earner. Also when you come to sell the property capital gains tax will have to be taken into account. More info can be found at www.direct.gov.uk

Buy to Let Additional Costs

Rent less mortgage payment unfortunately does not equal profit as there are numberous additional costs to take into account in being a landlord, these include but are not necessarily restricted to:-

  1. Letting Agents Fees - Unless you want to be very hands on and an experienced landlord then we would suggest using an ARLA registered letting agent. Some lenders may specify this as one of their lending criteria. Fees can vary from 5-15% of rental income dependant uppon the level of management required and they will want this money up front for the term of the AST (Assured Shorthold Tenancy)
  2. Ground Rent & Service Charges - If you are purchasing a flat then there will be ground rent and service charges though they may include building insurance check to make sure your covered
  3. Buildings Insurance - You will need specialist building insurance for buy to let properties - speak to us for more details
  4. Gas testing - All properties will require a Corgi Gas Certificate each year if gas is installed
  5. Maintenance - General maintenance, decorating and furnishings will have to be factored into the long term up keep

Becoming a private landlord can be time consuming compared to other investments and should be seen as a long term investment. Having a property let to tenants could potentially be very rewarding and Mortgages Expert can assist in finding you the best buy to let mortgage

Best Buy to Let Mortgage Rate Table

Further Resources on Buy to Let

LandlordZONE.co.uk - Rental Property Knowledge - Resource Site for Landlords, Tenants and Letting Agents

 

 

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