Buy to let mortgages are for those looking to buy a property to let it out, as the name suggests! These can be harder to come by than a standard mortgage and the deposit required can sometimes be substantially higher. To buy a property, usually a deposit of 10% is sufficient whereas with a buy to let mortgage, you may need up to 50%, although some may consider 25%, the more deposit you have really is more crucial in this case than in all other cases.
The fees and interest rates also tend to be higher on a buy to let mortgage because they are a higher risk for the mortgage lender. They need to see that it is affordable. The rental needs to be quite a lot higher than the monthly repayments and they will look into all these factors when making a decision on whether or not to give you the loan.
Buy to let may be a good way for those looking to buy another property while already on the property ladder themselves so they can have another property on their portfolio and have an income from the new rental. Hopefully the rent you charge will be more than the mortgage repayment so you will have an additional monthly income coming in, however, even if you do not, it is still a great investment as you will one day be able to sell the property, hopefully at a profit so therefore, again, cannot go wrong with investing your money into a property.
If you cannot afford the mortgage repayments, the rent should hopefully cover this. The best way I think would be to have an estate agent manage your property for a small management fee. They would put the property to let on all the usual websites etc so to get people through the door looking at the property then also they can be point of contact for the tenants as well should there be any problems, which then is up to the estate agent to sort out and they will contact you rather than dealing with the tenants directly and rather than having to sort out tradesmen or whatever may be needed. The estate agents will know who they use frequently for all trades and be able to sort the problems out quite quickly.
Some of the drawbacks of having a buy to let property is that say for example, the tenant does not pay you or you may have a period of time when the property just is not renting out for whatever reason, , you still have to make the monthly repayments and if you already have a personal property you are paying a mortgage on, then you will be paying out for 2 mortgages and therefore could draw up huge debts, making your credit rating bad and then also, you may lose your family home as a result of not being able to keep up the mortgage repayments on that either. You may also need to prove that your salary is over £25,000 a year otherwise they may not approve your application or even look at it.
A benefit to a buy to let mortgage is that unlike buying a personal property and getting a personal mortgage, where it nowadays near on impossible to get an interest only mortgage, the buy to let prefer interest only mortgages, keeping your monthly repayments lower and then you repay the capital sum when the term of the mortgage ends.
Do not forget to factor in that if you sell your buy to let property for a profit, you could be liable to capital gains tax as well. Some of your rental income may also be liable to income tax.
There are a lot of things you will need to factor in when looking into buy to let, having a much bigger deposit to start with which cannot be easy sometimes if you already have a personal property and you saved all your money for many years to get a deposit together to buy that. A mortgage broker can really go over all the details, including rates, deposits, fees, taxes and all that you will need to take into consideration before embarking onto this kind of venture. Again once you have provided them with all the personal information they require from you, they can then come up with the various options open to you and importantly what the monthly repayments will be. Hopefully after doing all this research, a buy to let property will really pay off for you.
We have a few quotes from some people who Dexter spoke to on some of his travels regarding buy to let properties, which we can send you (contact us details on Contact Us page), but here is one from Mr King in Newquay;
‘I looked long and hard into whether a buy to let property is for us and where we were at the time. We had our own property but wanted to invest into another property for our future so we could retire comfortably. I approached our local mortgage advice broker and told him how much we had available and how much we were looking to borrow and the properties we were looking at buying. He took all our details and I had luckily managed to save quite a deposit after we had purchased our family home quite a few years ago now. We looked through all the rates and fees and he did explain all the taxes we would need to pay now and in the future. It was clear to us and we decided to go ahead and put the deposit down and go ahead in getting a buy to let property. We have not regretted it since, we get a good rental income and it is there for our future. The estate agent manages it for us and all we have to do is pay them a small fee for managing it all for us. We have not yet been without tenants since we bought it five years ago now’