Basic Guide To Buy To Let Mortgages

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A popular long term investment, if you're buying a property in order to do it up and rent it out, then you will be looking for a mortgage that is different from the one you have for your own home. Make sure you know all the pitfalls before it's too late.

As a great way to supplement your income, but to let is all about choosing the right property and getting the right mortgage.

Pick Your Area

Location of the property is very important. Factors to consider are closeness to local amenities or major employers. A letting agent can be a useful source of information. They should have specific knowledge on the local level of demand, the type of properties that are sought after, and popular areas.

Check The Overheads

It is important to check whether there are any service charges on the property. These can easily run to a couple of thousand pounds and need to be taken into account on top of the mortgage payments. In the case of leasehold properties, there will normally be a ground rent to be considered.

Factor In Maintenance Costs

It is also necessary to allow for maintenance costs and insurance premiums. If the property is to be let furnished, all furnishings must comply with rigorous safety standards and the cost of this must be accommodated for.

A prudent investor will also allow in their calculations for any likely period when the property is not let and therefore producing no income.

Allow For Agency Fees

If an agent is employed to manage the property, their charges will vary from 10% to 15% of gross rental income.

Buying-To-Let As An Investment

Most buy-to-let mortgages require a minimum of 15% deposit and are usually based on the rental income of the property, not the income of the investor.

It is prudent to ensure that rental income represents between 125% and 150% of mortgage repayments, and indeed some lenders insist on this.

Typical interest on a variable rate buy-to-let mortgage are around 4%-5.5%. However, rising property values and an increasingly saturated market, particularly in the London area, mean that returns from such an investment are less attractive than they were.

The Association of Residential Letting Agents (ARLA) expects that the private rental sector will grow from its current level of around 11% of the housing market up to 20% by the year 2020. One reason for this is the increase in the number of single persons and single-parent families wanting rented accommodation.

ARLA further suggests that with people living longer, with less predictable income flows, there will also be a trend for them to rent in the later part of their adult lives.

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