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Buy to Let Mortgage Guide

Previously, buying a property to produce an income was considered by lenders to be a commercial undertaking. Therefore mortgages, on property intended to be let, have attracted higher interest rates than those available to owner occupiers. Also, rental income was not usually allowed to be considered in the assessment of a borrowers ability to repay the mortgage.

Things have now changed and many lenders consider that the private rented sector should be encouraged. Lack of choice between renting and buying is generally considered to be bad for the economy and may even have contributed to the booms and busts in the housing market over previous years.

Now, changes in the lending criteria and lower interest rates are available, which can make Buy to Let an attractive oppourtunity for private investors.

Gross returns or the rent received before taking account of the costs incurred such as management fees, maintenance, service charges, ground rents and insurance, can vary between approximately 7% and 10%. Expensive properties may produce a lower return than cheaper ones.

The average rental return in the UK tends to remain at approx 10% and capital appreciation is likely to be higher than inflation for the foreseeable future.

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Generally, your gross rents should be between 130% and 150% of your monthly mortgage repayment.

Buying a property to let is different from buying your own home. Try getting advice from an experienced letting agent who will know the local market and where the demand lies. Maybe two-bedroomed flats, or four bedroomed houses are more popular, or properties close to transport links or schools would be a better investment.

You should also consider the selection of tenants, will they pay their rent on time, leave the property at the end of the tenancy and leave it in a proper state? What about the day to day management of the tenancy?

Armed with suitable advice from a letting agent, Buy to Let investors can start looking for a suitable property. Once a property has been found, the letting agent may advise on whether or not it has letting potential, what rent may be achievable in the local market and whether re-decoration and new fixtures and fittings are needed to attract good tenants and to avoid the chance of long un let periods.

BUY TO LET DO'S AND DON'TS

DO - Ask the advice of a local letting agent on local rental market demands.

DO - Consider a buy to let property as a medium to long term investment.

DO - Furnish and decorate to a high standard. Good quality bathrooms and kitchens will attract the best tenants and help you to let quickly every time.

DO - Make sure your sums add up. Ensure that the rent will cover mortgage payments and other costs, even if you have periods without tenants?

DON'T - Buy anything with intensive maintenance problems. Large gardens add little to the rental value and will cost you a lot to maintain.

DON'T - Allow your own personal taste to influence your decisions. Ensure the property you choose matches the local market needs.

DON'T - Use off-the-shelf tenancy agreements from stationary shops. Ensure your paperwork suits your circumstances. DON'T - Forget to issue the right documents or fail to have a condition report or proper inventory made before a tenant moves in.

DON'T - Leave the running of your property to friends or relatives when you are away. Tenants will need a proper management service.

DON'T - Use second hand furniture or old soft furnishings. You have to abide by the Furniture and Furnishing Regulations.

MORTGAGES FOR BUY TO LET - CLICK HERE TO GET A QUOTE

There is not much difference between a Buy-to-Let mortgage and a standard mortgage for normal home buyers. Buy to Let mortgages are subject to the usual status checks. Generally Buy to Let mortgages are available for between five and 45 years and for up to 80% of the property value.

Through the Buy-to-Let scheme, the rental income you get for the property can be taken into account.

Generally, lenders will expect landlords to use a letting agent to manage the property and for the tenants contracts to be drawn up as Assured Shorthold Tenancies.

Insurance cover is also available to protect the rental in the event of a defaulting tenant, and for legal expenses as well as the usual building and contents insurance.

You should also comsider the additional costs involved. Letting agent's commission, insurance premiums for building and contents cover as well as rental and legal expenses cover, the costs of keeping the property in a lettable condition, service charges and ground rents if the property is leasehold. The tenant is responsible for such items as utility bills, Council Tax and TV licence fee, etc. You will be able to make taxable deductions against the rental income for the costs such as insurance, cleaning, gardening, agent's commission and other reasonable expenses.

The cost of furniture, fittings and fixtures is not deductable, but subsequent replacement can be claimed or a wear and tear allowance of 10% of the rents received may be deductible.