Buying to Let


Buying to let can be a very good investment. Although interest rates used to be higher, as lenders have always viewed it as a commercial proposition, lenders and other housing professionals are now agreeing that growth in the private rental area needs to be encouraged. This is because the private rental area in the UK is falling behind other advanced economies, the poor range of choice between the buying and rental sectors is said to be bad for the economy, and a contributing factor to the highs and lows of the housing market over recent decades.

A report by the CML (council of mortgage lenders) indicated that there were 275,500 buy to let mortgages in the UK in 2002, buy-to-let lending increased from £6.6 billion in 2001 to £12.2 billion in 2002, an 85% increase.

The mortgage & costs
Buying to let mortgages usually need a 15% minimum deposit. Some lenders will insist that your rental income is between 125% and 150% of mortgage repayments, and it is a good idea to do so any way to insure you will have available money should any problems arise.

A buying to let mortgage is similar to a homeowner’s mortgage. The rental income you get for a buy to let mortgage is taken into consideration when applying for the mortgage.

Lenders normally expect the landlord to hire a letting agent, to manage the property and to draw the contracts up.

The additional costs also need to be involved, such as agents commission, insurance premiums for building and contents The tenant is responsible for such bills as council tax, TV licence etc. You will be able to make taxable deductions for things such as insurance and agent’s commission. But the cost of furniture, fittings and fixtures are not deductible.

What do letting agents do?
Mortgage lenders most likely will want to know that you have been advised by an ARLA letting agent – therefore this will enhance your changes of securing a bigger mortgage. They will also be very useful when searching for your property, as they will work regularly with some of the best estate agents around the area. They will know the current market in the local area, and will be able to advice on what types of properties are in current demand, i.e. 2 bedrooms/4 bedrooms etc. They will also know the standard of decorating, furniture, fixtures, fittings and appliances.

Once you have found a property your letting agent will be able to confirm whether it has letting potential or not. And advise on the level of rent that can be expected in the current market conditions.

If you go ahead and buy the property, and once it’s to the correct standards, you can start looking for tenants. Your agent will be able to help you, as they will have had a great experience with tenants, and will help to pick the ones that will pay there rent on time, leave on time, and leave the premises in a good condition.

They will then draw up tenancy agreements, and prepare an inventory and condition report of the property, arrange changes to council tax and utility bills. They will also collect the rent and pay it into the landlords account, regularly inspect the property and arrange for redecoration if needed.

Insurance
Insurance cover is available for rental protection, for legal expenses, building and contents insurance.

Things to think about!

Can you afford it? - Can you get the mortgage? Can you afford the deposit?

Who is the target market?
Research the market - either by your self or hire a specialist.

Location - Depending on your target market, this will influence your location decision

Finance and the future - Property is a long-term investment normally. Can you afford this in the future? Also think about the future of the property and its surrounding area, is the property near any new developments such as rail links, shopping malls etc.

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