For many, buy-to-let looks an attractive income investment at a time of low rates and stockmarket volatility. But if you are considering investing in property, or improving your returns on a buy-to-let you already own, it's important to do things right.
Buy-to-let has seen a resurgence in recent times. As an income investment for those with enough money to raise a big deposit buy-to-let looks attractive, especially compared to low savings rates and stock market volatility. Meanwhile, the property market bouncing back has encouraged more investors to snap up property in the hope of its value rising.
Buy-to-Let Tips and Advice
Regardless of whether you are new to the Buy-to-Let scene or you are an experienced landlord, fully understanding the ins and outs of Buy-to-Let mortgages is essential when managing your property portfolio.
A Buy-to-Let mortgage operates in a very similar way as a residential mortgage. However, a Buy-to-Let mortgage does have a few key differences.
For example, mortgage interest rates for these types of mortgages tend to be higher than those for residential mortgages on your home, and the loan-to-value (LTV) is generally lower.
One of the main changes when going for a Buy-to-Let mortgage is how your affordability is assessed. Whilst employment income, benefits and a combination of other sources are used to evaluate your ability to repay the loan, Buy-to-Let works in a different way. Rental income will be assessed as a percentage of your mortgage payment, usually at least 125%. To explain, for example, if your mortgage payment is £700, you may need to attain rent of at least £875.
Tell your Mortgage Lender
If you already have a residential mortgage, your lender needs to give you formal ‘Consent to Let’ before you can let out your property. Your decision to let may mean that you are put onto a higher Buy-to-Let interest rate. Failing to notify your lender that you are letting out your property will put you in breach of your mortgage agreement.
Tell your Insurer
Your standard Buildings and Contents insurance will not cover you if the property is to be let out. You will need to seek specific Landlord’s Insurance instead.
Can you Profit from a Buy-to-Let?
To work out whether a property is likely to be a good investment, you need to work out all of the costs that you will incur and what the potential returns are. Start by correctly breaking down the costs included in the buying, running and selling of the property.
Buying a Buy-to-Let Property
There are many costs to consider such as mortgage arrangement fees, broker fees, survey fees, legal fees and stamp duty. In addition to these, you will also need a deposit which is typically 25% of the property's value.
Running a Buy-to-Let Property
The highest cost of a Buy-to-Let investment is typically the mortgage, so it is extremely important to make sure that you keep this as low as possible throughout the let. Mortgage advisers that we can recommend will help you find a suitable mortgage deal for your circumstances.
Maintenance Costs, Lettings Agent Fees, Annual Safety Checks, Landlord’s Insurance and Rent Insurance are all costs that need to be considered, even though they may not be taken into account by the mortgage lender
When renting out your property, there are also different taxes that you will have to pay, it is therefore advised that you seek advice from a qualified accountant.
The Costs of Selling a Buy-to-Let Property
When it comes to selling your property, there are costs to take into account such as estate agency fees, legal costs and any removal fees. The sale could have a Capital Gains Tax liability. To find out more about this, contact our recommended mortgage advisers.
Calculating the Investment Returns
It is important that your property or portfolio is making a good return versus other types of investment. To compare how well your property is doing, you will need to calculate the return on your investment - both on an annual basis and over the time that you intend to hold the property. The return is usually referred to as 'yield'.
PK Properties Residential Sales department would be happy to help you with your search for your ‘buy to let’ investment, so do please get in touch.
To discuss potential rental income in certain area or different types of housing, feel free to contact our Lettings department and we will be happy to offer our advice.