Buy To Let Mortgages

Introduction

This is a popular and specialist market where the help of experienced professional advisors will be invaluable to investors. With many years experience in the buy to let market we are sure to steer you in the right direction.

Although many of the high street lenders we would recommend for residential mortgages also have BTL products, these are probably not the most suitable for property investors. We hope to provide some basic guidance within this site although we are always pleased to discuss your individual circumstances.

As many people have lost confidence in normal pension provisions the number of people taking their future into their own hands by investing in property has increased. Property has generally been believed to be a good long term investment, many have also made short term profits from property investment; however property investment is not guaranteed to provide a good return and must be considered carefully before any purchase.

Changes in working patterns, people becoming more mobile, rising divorce rates and the average age of first time buyers now being over 30 years old have increased demand for rented property and short-term lets. In the last few years this gap in the market has been filled increasingly not by big landlords, but by individuals buying one or more properties in addition to their home as an investment and letting them out to cover the cost of the loan.

A mixture of high street and specialist lenders now offer packages for just this market. You can get a buy to let mortgage on terms to suit almost any circumstance. These include fixed rate mortgages, discount mortgages and tracker mortgage deals - and some are highly flexible. The difference between a buy to let mortgage and a standard home loan is that most lenders won't just take your salary into account when assessing eligibility. Potential rental income from the property is often the main consideration included in their assessment of affordability for the loan.

  1. Why Buy To Let Mortgages?
  2. Choosing The Right Buy To Let Property
  3. What Will a Buy To Let Mortgage Cost?
  4. What Are The Risks Of Buy To Let Mortgages?
  5. What If I'm Not Sure?

  • Why Buy to Let Mortgages?

Property is an excellent long-term investment, with the potential to offer good income and good growth. Until last year when the stock market saw significant growth, capital growth in property in the past 25 years has exceeded just about any other field, particularly in the south east of the United Kingdom.

Although this cannot be taken as an indication of the future of the property market, which is highly unlikely to continue to rise so dramatically, property values are still on the increase in most areas with market estimates forecasting up to an 4% increase in 2018. However, fluctuations in the market and the inevitable delays in selling a property make it an unsuitable choice for anyone needing short-term returns, or who might need to access the money tied up in a house quickly.

Many people invest in a buy to let property as a pension - the rent each month can be used to supplement your retirement income, or the property can be sold and the proceeds used as a nest-egg.


  • Choosing The Right Buy to Let Property

Location, type and condition of the property are the three most important factors to look at when choosing a buy to let property - good research is vital. Is the property close to transport links? Is there parking? Is it close to amenities, such as the shops and schools? Don't just consider your own preferences - ask local agents for advice on what's in demand in the area. In some places family homes are in demand, but in others a one-bedroom flat may be more easily let.

Most tenants have high standards these days - modern bathrooms and fitted kitchens are essential in your property. There is a demand for unfurnished property, but showers, fridges and washing machines are now expected as standard. It is worth paying extra for a property in good condition, unless you have the time and resources to refurbish it.

You might choose a fantastic location for your immaculate property but still be unable to let it due to unfavourable market conditions, or just lack of demand. To cover your mortgage payments and make buying to let a successful investment you need to keep your property rented as consistently as possible. Make sure your research covers local demand for rental properties and an assessment of future demand, to be as certain as possible that you will be able to let your property.


  • What Will a Buy to Let Mortgage Cost?

Mortgage rates are not the same as in the residential market - lenders consider buy to lets a greater risk and a semi commercial loan therefore demand a greater return. Their buy to let rates can be up to one percentage point higher than residential rates. The deposit required for buy to let mortgages is also higher. It is possible to get a mortgage with a 15% deposit however most lenders ask for at least 25-30% deposit. If you arrange your buy to let mortgage through us we charge a £300 fee invoiced on mortgage offer. However, many brokers may charge you a fee of up to 1.5% of your mortgage value. A fee-paying option is also available.

You will have to pay for the survey and legal fees, as with any property purchase.

For a leasehold property there may also be service charges to consider. If you plan to let furnished, you will have to allow for the cost of buying reasonable quality basics - strict fire regulations prevent you using cheap second-hand furniture.

If you plan to use a letting agent, you will have to factor in that cost as well - fees can be between 10% and 20% of the rent.

Don't forget to add on the cost of insurance - not just for buildings and contents, but also against loss of rental income if the property stands empty, possible damage by tenants or for legal fees if you need to evict a tenant.

Any rise in the value of a rental property, unlike your home, is liable for capital gains tax. Each individual is allowed £11,500 tax-free per annum – so if you buy as a couple your joint allowance would be £23,000 (you should check these allowances as they change each year). This constitutes your total Capital Gains Tax allowance for the tax year and assumes that you have not used up the allowance on other capital gains. The allowance is only available in the year you realise the gain (when you sell the property). Based on 2017/2018 tax year.

However, you will be able to off-set some of the maintenance and running costs against tax. Mortgage interest payments for buy to let properties, for example, can be set against rental income.

You should seek professional advice on taxation matters including tax planning.


  • What Are The Risks of Buy to Let Mortgages?

As with all investments, the value of a property can go down as well as up - and unforeseen structural problems prove expensive. However, if you pick the right area and are realistic about returns, you can reduce the risks. Having an appropriate survey carried out will help reduce your risk.

Rental income from buy to let properties too can vary: if the market is saturated with rental properties, your annual income may remain static, fall or even stop if you are unable to let the property. You need to build leeway into the rent to allow for periods when the property might be empty between lets (it takes on average four weeks to let a property), and to cover maintenance costs. If you are unable to let a property you will still be responsible for paying the mortgage.

The more cautious investor might prefer to borrow less - you should aim for a rental income of over double the monthly mortgage payments.

Many people are put off buying to let by the thought that they will have to spend a lot of time sorting out problems such as broken washing machines or tenants who default on payments. A good agent can take care of everything, from finding tenants and checking references to managing an inventory and dealing with unexpected problems like burst pipes.

Agents can also advise on tenancy agreements. Most lenders require you to have a six-month, Assured Shorthold Tenancy Agreement with your tenants. You may also find it more difficult to arrange finance if you are planning on letting to students or for more irregular tenancy periods, such as "holiday lets" or "company lets". You may also have difficulties should you be planning on letting to a DWP tenant.


  • What If I'm Not Sure?

We can help you by searching the market for buy to let mortgage deals from a comprehensive range, from a database that includes exclusive products and special deals. Why not Contact Shire Financial Services about this today?


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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SHIRE FINANCIAL SERVICES LIMITED IS AN APPOINTED REPRESENTATIVE OF SESAME LIMITED WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

COMMERCIAL MORTGAGES, INCLUDING BUSINESS BUY TO LET, ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY. FOR COMMERCIAL MORTGAGES WE ACT AS INTRODUCERS ONLY.