essentials tips for buy to let mortgages

What you need to consider before getting a Buy to Let Mortgage?

This quick informative guide gives you essential food for thought before entering into a Buy to Let mortgage.

Things to consider before entering into a Buy-to-Let Mortgage:

  1. Location is key – choosing the right location is a real “yay or nay” when looking to appease prospective tenants. Find out what the rental market is REALLY like in the area before committing. An area with high value properties is not always best if people are unwilling to pay the rental costs associated with it.


  1. Who is your prospective tenant(s)? Think about the market you wish to attract, are they a single professional, student, family, a couple, have a dog (s)? Do the amenities in the area you are looking in suit the requirements of the tenant you wish to attract?


  1. Property Condition – Mortgage lenders will take stock of the condition of the property when deciding whether or not you can afford the mortgage. The condition of the property will affect the value of the property, which also has an impact on the amount of rental you can charge.


  1. Fees – if you do not have time to manage the buy-to-let process there are agencies that can take care of everything for you. However, agencies will charge you around 15-20% of the rental income just to manage the property. BUT this will reduce the amount of time you would need to actually manage the property yourself.


  1. Tax and Buy to Let – there are 2 types of tax you are liable to pay once you have secured a Buy-to-Let property:


  • Capital gains – tax you pay on any gains in value of the property if you sell it. As a basic tax payer, capital gains tax on buy to let as a second property is charged at 18% and if you are on a higher or additional rate it’s charged at 28%


  • Income taxbecause you will receive an income from the tenant(s) you will be liable to pay income tax. This must be declared on a Self – Assessment tax return for the tax year earned. Depending on your income tax band this could be charged at 20%, 40% or 45%.


  1. No Occupancy – it’s realistic that you will have periods where you will have no occupancy. You need to make sure that you can afford to cover the costs of your buy-to-let mortgage if this happens.  Do you have savings, or a way of paying without relying on tenant(s)?


  1. Repairs – what happens if the property needs a new boiler, oven, washing machine…drains sorting? Do you have the money to fulfil the standard duty as a landlord for your tenants? Think realistically about how much savings you will need to cover any such eventualities.


  1. What is the Property Market Trend? The property market has always fluctuated people are currently as a trend not buying and doing up properties to sell for instant financial gain. Due to the instability in the marketplace people are tending to hold onto properties and playing the long financial gain with buy-to-let with a steady flow of profit return from the rental fees.


  1. Mortgage interest rates are vital when getting a Buy-to-Let – make sure you get plenty of quotes and make sure you’re getting a competitive rate. Compare the length of the fixed rate and the cost of arranging your mortgage, and your monthly repayments vs the overall amount you will be paying.


BEFORE you take out a buy-to-let mortgage talk to us!  We offer our advisory service for free, so rather than doing all the hard work yourself, and limiting your search for a better rate just reach out.  After all, you’ve got nothing to lose, and we’ve got a joint 75 year experience in the industry!


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