Buy To Let Mortgages
These types of mortgages are designed for property investors and private landlords, who do not intend to live in the purchased property.
When buying a rental property, you will need to decide whether your investment objective is income or capital growth. Are you looking to cover the monthly costs and perhaps make a profit to supplement your income? Or, are you looking to make a profit later upon the sale of the property, with the assumption your property’s value will increase in value over time? The decision may affect the type of property you purchase, its location, and also the risk involved since there is no guarantee that property prices will rise
Normally a lender’s decision about whether to offer a mortgage or not, will be based on the rental potential of the property as well as your own income, though in some cases, your income may not be considered at all.
Usually, a minimum of 20% to 30% of the property’s value is required as deposit and you can expect Buy to Let mortgages to have higher interest rates applicable to them. 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.
As well as mortgage costs, potential landlords should carefully consider the costs of owning the rental property itself. These additional costs may include:
- Property Maintenance. The upkeep of the property itself, such as repairs to appliances, and redecoration that may be required before a property can be let to new tenants.
- Letting Agent fees. Though it varies, letting agents normally charge around 10% of the monthly rental income for managing tenants. If you need full management of your property, it is not unusual for these costs to be much higher, typically around 15% of monthly rent. When choosing a letting agent to act on your behalf, it is wise to choose one that is a member of The Association of Residential Letting Agents (ARLA). All members of the ARLA participate in a bonding scheme to protect both rental income and tenants’ deposits.
- Ground Rent/Service Charges. Applies to leasehold properties.
- Legal insurance. Say for example in the event of non-payment of rent, anti-social behaviour or damage to the property. Legal insurance can be used to cover costs involved in pursuing eviction.
- Buildings /Contents Insurance. The property will need buildings insurance, and any furnishings provided as part of the rental agreement will also need to be insured with a suitable contents insurance policy.
- Furnishings. If the property is to be let as furnished then you’ll need to consider the initial cost of providing the items needed to furnish the property.
- Appliance Safety and Inspection. Certain appliances will need to be regularly inspected and serviced to ensure they are safe to use and compliant with current regulations. Examples include Gas Boilers and Gas Fires.
The taxation of the income derived from investment properties is changing with the ability to deduct the full mortgage interest being removed completely from April 2020. We advise our clients to take specialist taxation advice.
Underwriting for these types of mortgages varies considerably from lender to lender. Please call us on 01483 266666 and speak with one our qualified advisers for expert advice that you can trust.
Some buy to let mortgages are not regulated by the Financial Services Authority.
This article is intended to provide a general appreciation of the topic and it is not advice.
For more information please contact Oakwood on 01483 266666 or email email@example.com and we will be happy to assist you.
Article expiry: 05 Apr 2019