Buy to Let-things to consider



With reports like this one highlighting how much renting a property has increased in the last few years, it’s easy to see why many people are looking to capitalise on the growing trend and buy a property they can rent out.

Investing in a buy to let property can be a very good way to boost your income, especially with rental prices on the up, but there are risks that come with buy to let investments.

 

Buy to let mortgages

Your home may be repossessed if you do not keep up repayments on your mortgage

 

These are like ordinary residential mortgages but have some key differences:

 

-Interest rates tend to be higher

-Buy to let mortgages are interest only which means you just pay the interest charged each month. At the end of the mortgage term you must repay the capital in full.

-Minimum deposit will be higher. It is usually 25% but can vary between 20 and 40%.

 

The reason Buy to let mortgages are more expensive is because they represent a bigger risk to lenders.

 

-Before deciding how much you can borrow, lenders will look at the potential rental income from the property. Typically, lenders will want the rental income to be 25-30% more than your mortgage payment. So, to ensure you make a profit you should look to make a minimal rental income of at least 125% of your mortgage repayments and additional costs each month.

 

Financial cushion

Don’t assume your property will be occupied 100% of the time. When tenants move out and you are looking for new ones there will be no rental income coming in. You will need to ensure you have money set aside for times like this to be able to make your mortgage payment. No tenants=No rent!

You will also need an emergency fund to cover the cost of property repairs or breakdowns, for example, boiler repair, blocked drains etc.

 

Tax

Rental income that exceeds your mortgage interest payments and allowable expenses are liable to income tax. More info on this can be found here.

 

For advice on Buy To Let mortgages call us on 01928 735510 or complete the enquiry form and we will call you back.