Buy to Let

Differences in Buy to Let Mortgages

There are 3 main differences in Buy to Let mortgages

• Rent Potential - The decision as to whether or not a mortgage will be offered is usually based on the rent you will earn as well as your income. Although, in some cases your income is not ever considered.
• Interest Rates - Buy to Let mortgages have slightly higher interest rates.
• Larger Deposit - Typically a minimum of 20% or 25% of the property's value is required as a deposit.

When buying a second property to let, you will need to decide whether your primary objective is income or capital growth. In other words, are you looking to make a profit month on month or are you looking to make a profit through increased equity if it increases in value over time? The decision may affect the location and the type of property you purchase.

Choosing a property to let

When choosing a property to let, it is wise to take advice from local letting agents to help determine what types of properties are in demand and which parts of the town are best or most wanted. They can also tell you if there is a University nearby and if students are looking for somewhere to live. Please be aware that from 6 April 2016 higher rates of Stamp Duty Land Tax will be applied to the purchase of additional residential and non-residential properties.  Please click here for further details:

Additional Costs

When you manage a property there are many costs involved in addition to the monthly mortgage repayments. As a guide, you should be aiming to achieve a gross rent of about 135% of the rental property's interest only mortgage repayments in order to cover your costs should anything go wrong. These additional costs could include:

• Property upkeep - Maintenance costs for the property.
• Letting agent's fees - Letting agents charge around 10% of the monthly rent for finding and vetting tenants with an additional cost of around 10% if you require a full management service.
• Ground rent/Service charges - Applicable to leasehold properties.
• Legal insurance - To cover costs from evicting tenants in the event of non-payment. This is very important, as this can be very expensive.
• Insurance - Building insurance and contents insurance for the items provided as part of the rental agreement.
• Furnishings - If the property is to be let furnished, make sure you are covered for this by your home insurance.
• Gas/Electrical appliances and installations - Cost of maintaining appliances and ensuring they comply with regulations such as safety tests.
• Decorating costs - The property may require work to be carried out prior to it being suitable for letting to tenants.
• Gas safety certificate - You are also responsible for ensuring an annual gas safety check is carried out within 12 months of the installation of a new appliance or flue which you provide and annually thereafter.
• Energy Performance Certificate - Providing an EPC for your buy to let property.