Buy to let

As buying to let is quite a big subject, we have opened up a new website, click on the buy to let link below

Visit our buy to let website

Why buy to let

Many home owners have direct experience of profiting from property, a buy to let mortgage enables you to benefit from rising property values and have your mortgage paid at the same time. Buying to let is no longer the domain of the wealthy few, the prospect of buying and letting property is now within the reach of many people

With interest rates at historically low levels, and stock markets uncertain, investing some money into property can be a sensible investment. Like any investment a property that you buy to let has its risks and rewards. If you take advice and plan your buy to let carefully the risks can be minimized.

Buy to let mortgages enable the investor to benefit from capital gearing. You invest a relatively small fraction of the value of a property, but you benefit from the capital growth of the full property value.

for example:        Property value     £50,000

                           Deposit               £10,000

if property rises in value by 5% p.a.

                            Value after 1 yr.    £52,500

                            Gross profit            £2,500

which represents a return of 25% on your investment!

This example assumes that your mortgage costs and expenses are covered by rent received. The costs of buying and selling are omitted.

Where to Buy to Let

An important consideration is to be sure that the property is suitable for letting. Is there good demand for accommodation to let. Consult several local letting agents and ask there opinion, find out what is the going rent. If you find a responsible letting agent you might prefer that they manage your property.

Consider the worst case scenarios, what if you cant find a tenant, what if the tenants decide not to pay, what if they damage your property. These are all questions a good letting agent should be able to answer.

How to Buy to let

If you do not have the funds to outright purchase a property then you will need a mortgage. Where previously borrowers were restricted to commercial mortgage lenders, nowadays the buy to let  mortgage marketplace is quite competitive and the lending rates approach those of the mainstream lenders.

You will need a deposit of at least 10% for a buy to let mortgage and additional funds to cover survey fees and legal expenses.

Another option to consider is a 'let to buy' mortgage where you let your current home and buy another at up to 95% loan to value, if this is of interest complete the factfind Please make it clear what you wish to do.

All lenders will require you to have an income, this gives the lender peace of mind that the mortgage will be paid even if there is no tenancy in place. Some buy to let lenders require that your income covers both your existing property and the let property. Other lenders just require that the rent covers the mortgage payment by a set percentage.

You can buy to let several properties, a strategy often pursued by professional landlords is to buy properties one by one using the equity in the previous property as deposit for the next.

Buy to let costs

As the landlord, you will be responsible for the upkeep of the property, and the tenants may reasonably expect you to foot the bill for any repair work. The costs for this must be taken into consideration when you set the rent.

Letting agents will commonly charge 10-15% of the rent as management fee.

As well as your buy to let mortgage there will be associated insurances to consider, for example life and buildings insurance.

Finally, be aware that the inland revenue regard any net income or capital gains as taxable. Information regarding the treatment of income tax can be obtained by requesting the following booklets:

            IR87    Letting and your home

            IR150   Property income and taxation

Other information

The Department of the environment publish a booklet titled 'Tenancies, a guide for landlords' it is available free by phoning 0870 1226236.

The Council of Mortgage Lenders publish two booklets, which can be downloaded from their website: www.cml.org.uk

• Buying to let (leaflet) (pdf 50kb)
  A guide for people thinking about buying a property to rent out.

• Thinking of buying a residential property to let? (leaflet) (pdf 153kb)
  A checklist of questions to answer before becoming a landlord.

These documents are in PDF format. You can open these files using 'Acrobat
Reader'. If you do not have this utility installed you can get a free
download. Click on the image below.