Buy to Let Mortgage

When seek a buy to let mortgage keep in mind that you are one of many, and that your mortgage lender will be well aware of the legal factors involved, and so be able to help you. The same is true of the solicitor you choose.

That is because buying to let has become extremely popular over the last decade. In fact it is an exciting investment to make, not only because a great deal of money can be made from a small investment in your own time, but also because of the growing market for rental properties.

There has been a social swing towards rentals as first-time buyers find it increasingly too expensive to purchase homes, particularly in certain areas, and more and more people are leaving home to live by themselves. A buy to let mortgage is very attractive to those with spare cash available to cover a deposit and also to renovate older properties.

So, Why Buy to Let?

The return on investment is very attractive in comparison to other forms investment in these days of falling interest rates.

Although property prices are falling, this can be to your advantage in that you can buy cheaply now and benefit when prices rise later. This is particularly true if you are letting, and do not need an increase in prices in order to maintain your equity. At the moment, buying to let is a good deal, both in terms of a longer term growth investment and a short term investment for immediate income through rental charges.

However, although there seem to be few negatives involved, there are several pitfalls in buying to let, and here is some advice to help you miss the snakes and land on the ladders.

1. Rental Potential

If mortgage lenders know that you are buying to let, they might not consider your income in determining the mortgage loan they are prepared to offer, but the rental potential instead. Some might consider both, and some only the potential for rental income.

2. Interest Rates

You should expect to pay a higher rate of interest on a mortgage intended for a property that is to be let.

3. Deposit required

You won't get away with a deposit of only 10% of the purchase price with a property intended to be put on the rental market. Around 20% - 25% would be closer to the mark, so be prepared to need a fairly hefty deposit available.

Becoming a landlord can take up a lot of your time and money during the early stages, and there is a risk involved. Property prices could drop, but if you can tolerate a loss of paper money due a drop in equity, then you can still make a lot of money in the long by renting out a second property. Don't expect an instant windfall however.

In fact, it is this problem between capital growth and immediate income that you will have to make a decision on: you have to come down on one side or the other. Not only will the prevailing and future economic situation affect these two objectives differently, but they will also have a bearing on the type of property you purchase and its location.

A rented property has associated costs other than just meeting the mortgage repayments, and you should consider these prior to making a decision. You will have more chance of success if you are fully aware of the financial implications of your decision. Here are some of them:

• Although it is not necessary to use letting agents to manage your letting, it is advisable to do so. Their costs can be approximately 10% of the monthly rent, and they will find and check out the tenants for you.
• Various insurances are essential: contents in case of damage, building, and legal in case of eviction being needed.
• Maintenance costs: you have a legal obligation here, particularly with regard to safety maintenance of gas and electrical appliances provided.
• Decoration costs - a good standard of maintenance is required here.
• Furnishings: repairs if the property is furnished.

Your rent should be set at around 135% of your mortgage interest. You should have some reference to damage costs in your rental agreement, so that you are not responsible for damage caused by tenants.

Finally, you are advised to get a tax expert to advise on the many tax benefits you can claim on the lets. For example, you can claim back for the fees charged by your letting agent, and also your maintenance costs. This can add up to a tidy sum, so professional advice might be advisable.

A buy to let mortgage is basically the same as any other, only the way that the amount of the loan is calculated might be different to that of a regular mortgage, and so too will the deposit required be. Before doing so, be clear in your mind what the purpose of you buying to let is, and what kind of return on your investment you are ultimately seeking.