The Brokers Buy to Let Guide
Buy to Let Mortgages* allow you to buy a £250,000 property asset without having £250,000 to spare and that’s quite appealing to many.
You see you only need to put in a fraction of the purchase price yourself, say 25%, after all it makes sense to leverage the cash you have - the plan being your tenant covers the mortgage costs for you.
Unlike other investments such as stocks, shares and pensions, property is tangible and comforting in that respect that you can see you investment - and of course people will always need a place to live.
"Buy to Let has enjoyed a period of growth from strong tenant demand"
First time buyers are finding it tough to get on the ladder following the FCA's Mortgage Market Review and so there's been increased demand for rental property for some time.
Coupled that with a housing shortage and its not hard to see why there is such demand to rent a home.
Savings are still only pulling in small amounts of interest, and with the stock market being erratic at best it’s no surprise that buy to let is both strong and attractive for lots of new would be investors, as well as existing property professionals.
That’s not to say it’s no risk, there are void periods to consider and the potential impact of a rise in interest rates, so don’t jump in feet first without investigation as it’s not for everyone.
Infact with sweeping tax changes being phased in and imminent hefty stamp duty surcharges being introduced in April 2016 - there is a lot to consider before you start putting down offers on property and making mortgage applications.
Investment returns in buy to let tend to be medium to long term, so hang in there and get the right advice from the right professionals for the job!
So, what elements do you need to investigate when getting into Buy to Let?
Here’s our quick and easy guide to what you’ll need to do:
- Thoroughly research the area even if you are familiar with it. Make sure there are good schools and transport links and get in touch with local letting agents regarding demand and how easily you can expect good tenants.
- Define who you will let to; A professional Couple, Family, DSS tenants or students. Each will be a different consideration for you and vary your mortgage options. Your tenant/s will also dictate to an extent what level of rent you can expect.
- Work out a basic yield, based on the expected rental income versus the property purchase price when weighing up properties. But also factor in your costs, mortgage, fees, letting agents, repairs etc etc. Buy too cheap a property and you might find it was cheap for a reason, so handle with care.
- Find yourself an excellent buy to let mortgage broker, you might even have found them already! They’ll be able to find you the best deals and guide you through the process smoothly. Find someone you feel comfortable with, and ask them as many questions as you can about what you wish to know and what they will do for you.
- Have a professional valuation carried out. You may decide to opt for more than a basic mortgage valuation.
- You certainly need a competent solicitor who will look at all legal aspects of the property and take care of your best interests. You’ll be spending hundreds of thousands so you absolutely need to make sure you get it right, so choose carefully. Make sure your solicitor is an excellent communicator as this is our biggest client gripe, not knowing what's happening. If others in the transaction are uninformed of your progress - that could be a big problem.
- Get insured. Make sure you have a correct and proper landlords insurance policy which will usually cover you for circumstances outside of a normal policy. You should take it out on exchange of contracts, as that’s the point you are legally bound to complete.
- Once you’ve bought the right investment property - get yourself certified! You’ll need gas and electric safety certificates as well as an EPC (energy performance certificate).
- Ensure you reference your tenants professionally with proper checks, eg credit check and employment reference. Almost all letting agents can help you here, but if you do decide to go it alone, it’s even more important to make sure your tenant will pay you, so look for firms to help you check your potential tenants out properly!
- Don’t always push for the highest maximum rent. Consider taking a slightly smaller rent, your property will rent more quickly and tenants will ultimately stay longer, helping you to dodge costly void periods. The same goes for maintenance, keep your property in good condition and your tenants are less likely to look elsewhere.
- Sort out your tax position, mortgage interest and other fees and repairs are usually tax deductible, but seek professional advice as changes are due on mortgage interest relief, as a good accountant will be worth his or her weight in gold. Indeed when you sell your investment property you could be liable for Capital Gains Tax, so your accountant will need to be involved here too.
Buy to Let isn’t designed as a short term investment, to make it pay it’s a medium to longer term strategy.
If there’s one thing we believe wholeheartedly in – its good solid professional advice, you can’t do it all alone however experienced you are....
If you want to have a chat about how we can add value from a funding perspective for yourself, please give us a call, drop us an email at email@example.com
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