Buy To Let Mortgage
There are many definitions of a buy-to-let mortgage available; in simplest term a buy-to-let mortgage allows you to borrow money from a lender in the form of a mortgage. The money is then used to secure a property with the intentions of renting it out. Your rental income is used to make payments against the mortgage and if you are lucky you can make some additional form of income for yourself.
In fact buy to let mortgages have been around for quite a while, they were introduced to the mortgage market in 1996. Before this, mortgages for this purpose were assessed on the principles and workings of commercial mortgages.
What is a buy-to-let mortgage?
Buy taking out a buy to let mortgage you are really looking to create some form of residential investment on a property, buying and renting the actual property out instead of living in it yourself. With changes in law and recovery in the private rented sector has created a thriving market for competitive loans for buy to lets, this has in turn led to an attraction of renting properties. When renting a property some basic terminology you will hear is the term landlord. A landlord is actually the person/people who have taken out the mortgage and the tenants are the party living in the accommodation.
Why choose a buy to let?
For many going down the road of buy to let is a financial one. Whether it is generating additional income for the month or creating a long term financial investment for the future. In fact there should be no reason both cannot be achieved.
How much can I borrow on a Buy to Let mortgage.
A mortgage lender will normally require a level of deposit to secure your mortgage. This is usually between 10 to 20 percent of the value of the property. If the property is valued at £150,000 then the deposit based on 10 per cent would be £15,000. Some mortgage lenders will actually take into account your salary when determining your application.
Buy to let mortgages are worked out by an interest cover calculation. In simple terms what you charge on rent needs to be higher than your monthly mortgage payment. The actual percentage increase on monthly payments should be between 10 and 30 per cent greater. For example, if the monthly mortgage payment is £1000.00, then your rental payment needs to be £1250.00 based on a 25% increase.
Where do I start with a buy to let?
Everything to do with a buy to let mortgage evolves around the property you go for. Therefore, the most important aspect is the time and effort you spend on finding the right property to rent. Get this wrong and you could be wasting a lot of your hard earned money! Make sure you know the area and the types of properties within that area that are available for rent. If you are unsure then it would be wise to find some letting agents who can help you understand the area, potential rental incomes and importantly the cost of the properties.
It is not hard doing some research yourself by speaking to friends and families in the area, contacting the local authority or even newspapers and local employers. Once you have done your research and built up a profile of the ideal tenants you need to find a suitable house that can be rented to them. The location will play a key role in the success of your new venture as the rented accommodation needs to not only meet the needs of the tenants from the inside but also the surrounding areas. For example the local amenities, shops, schools etc.
In addition don’t waste time looking at properties you just wont be able to afford, using our buy to let mortgage calculator you can quickly work out what loans you will have access to.
So you have found the right property – What next?
Before you rush out and attempt to get a buy to let mortgage you need to take into account a few more important considerations.
Think about the up keep of the property and your legal obligations for rented accommodation. Generally, a newer house will require less maintenance than an older property. Take this into account as there are costs associated with this.
What about the management of the property?
Becoming a landlord and renting properties for many seems like a perfect investment option, but successful landlords also are good at managing their properties. If you have only one property then you only need to find the most suitable tenants, ensure the monthly rent is collected and the property is fit for purpose. Especially, items like heating, water and gas.
Managing one property, for some, is hard work, the tenants can be demanding with requests for remedial work to be done, from trivial through to more complex situations.
The whole buy to let concept can become more difficult when you have more properties as there is much more work involved. Some people actually employ a third party agency to manage the property for an agreed fee.
What happens when my property is not rented?
Quite simple, you continue to pay the monthly mortgages payments. Make it a priority to get new tenants back in the property.
Are there any other costs associated with buy to let mortgages?
As well as the ongoing maintenance and up keeping costs of the property you are will need to ensure you have the appropriate level of buildings insurance and contents cover.
In addition, there are some tax implications that need to be considered such as managing it better and becoming more efficient.