Buy to Let Mortgage

The Ideal Package for Investors Purchasing Property to Rent Out

With the dramatic increase in property prices in recent years many people cannot afford to buy property. These people therefore have to rent and the strong demand for renting has led to an increase in the number of investors looking to buy property to rent out - known as buy to let. The buy to let mortgage is designed specifically for the buy to let investor and most lenders now offer buy to let mortgages, in fact for some specialist lenders it is there only offering.

Buying properties to let should be seen as a long-term investment. Lenders will normally require a deposit of around 20% and insist that rental income more than covers the monthly mortgage payments. However with other costs such as insurance, maintenance, letting agency commissions as well as having to cover periods when the property is unoccupied (voids) this can mean little chance of a profit on a monthly basis.

The main opportunity for profit is in the capital appreciation of the property, although there is no guarantee that the increases seen in recent years will continue which is why buy to let should be viewed as long term, ideally ten years or more.

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For landlords there are a number of things to consider:

Lenders Criteria

Lenders will normally require a higher deposit than would be required for a residential mortgage. Rather than a multiple of income as for a residential mortgage lenders will require the rental potential to be assessed to ensure rental income will be more than sufficient to cover the monthly buy to let mortgage payment. The interest rate charged and the associated fees will normally be higher than for a traditional residential mortgage.

Legal Requirements

A landlord has legal responsibilities in respect of regulations relating to insurance, fire, gas, electricity and health and safety.

Tenants

A tenant is only as good as his or her ability to pay rent so it is important to get bank and employer references or employ a letting agency to find a quality tenant. Insurance can be a taken out to cover void periods and/or non payment of rent.

Tax

Rental income is subject to income tax although interest payments, maintenance costs and some expenses can be deducted before calculating the tax due. When selling the property Capital Gains Tax may be due on any profit or gain made. The gain is calculated as the sale price less the purchase price, although there are some reliefs and allowances which may help reduce any tax due.

Ongoing costs

Landlords will be responsible for buildings insurance, painting and decorating, cleaning, home emergency, boiler maintenance etc..

Letting Agents

Landlords can choose to find their own tenants and manage the property themselves. Alternatively a letting agent can provide some or all of these services.

To search for the best buy to let mortgage deal in the UK click here.

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