Buy to Let Mortgages
Should I Invest in Property?
Location, Location, Locaton
The last housing boom, lack of faith in pension funds and underperformance of the stock market has led many people in the UK to invest in property. With Television shows dedicated to property development and DIY, and books promising tips on how to become a property millionaire, buy to let has never been so popular. But as with any investment, buying a property to let out carries a degree of risk. Follow a few simple tips and plan your project thoroughly and you too may find that property can considerably increase your wealth over time. Act carelessly and the value of your investment can be seriously harmed by poor management. Property location is the key, so invest the time in researching the next hotspot, or find out what the young professionals renting are looking for and whether being walking distance to a station is going to increase desirability. The recent property downturn is an all too apparent indicator that property investment also has it's risks. Buying prudently can lessen the risks, but holding onto the investment property for a longer period should see capital growth over the longer term. It may also be a very good time to look for some property bargains! You should be aware that most Buy to Let Mortgages are not regulated by the FSA.
The next property hotspot
Research, research, research
Buying a property at a low price and watching it grow in alue over the years is what investing in property is all about. But good management and prudent risk assessment is also required to mitigate lossess made by rental voids. Looking for areas that are earmarked for government funding or improvement are signs that you may be able to pick up a property bargain. Also buying when the market is weak and vendors are keen to sell at a lower price makes good investment sense. Looking for a property nearby to British Rail stations or Tube stations, or within the catchment areas of reputable local schools would mean a higher number of potential tenants. Also if the property needs a little attention, then do invest a little to give it the egde over the competition.
Keeping a contingency fund
Ensuring your property is rented
Void periods are the obvious risk with any investment property especially in a saturated market. Just contact any high street Estate Agent to see just how many properties are available at any one time. Tenants are in abundance, but making sure you get a right one is key. Make sure that you insist the tenant arranges a full reference for you to provide evidence of affordability and that they are in active provable employment. Also be sure to enter into a tenancy agreement. Refurbishing the property that you buy will also help to make it stand out from other properties available. Forget personal tastes, just keep the colours simple, clean and modern with nice fixtures and fittings and that should appeal greatly to the majority of the professional renting market, and help keep the property rented continuously. Keep a contingency fund available to cover void periods or to pay for expensive emergency repairs to the property, especially if your income would not allow you to pay for these. Remember that you need to make provision for your legal statutory obligations as a Landlord. Make sure that you obtain an insurance policy that protects you against non payment of the rent by the tenant. These types of policy are usually only available to tenants that have been fully referenced and approved by a professional referencing Company. Excercise due dilligence if advertising for tenants privately. It is after all your' investment and your capital at risk if you make the wrong choices.
Careful planning
Watch out for additional costs
Don't forget to factor in costs, such as the refurbishment of the property that you intend to buy and the fees charged by the Agent for letting the property and arranging any tenancy contracts. Also remember that the property will need to be inspected by a Gas Engineer to arrange a valid certificate of inspection for the appliances, a regulatory condition and you will also need to provide an Energy Performance Certificate. In addition to the mortgage cost each month, you may have to also pay maintainence charges and property insurance premiums. Preparing accounting records for each property that you rent out is also a mandatory requirement, so advice from a professional is recommended. There will be a tax liability on income received from rental properties after allowable expenses are deducted. However, you are eligible for tax relief on the following: 1.The interest on the mortgage 2. Rental insurance 3. Any maintenance of the property 4. Letting agency fees 5.10% of the rental income each year to cover depreciation in the value of furnishings, including sofas and carpets (this does not include fittings such as kitchen units and bathroom suites) 6. Professional advisory costs incurred after the purchase of the property Click on the link for full Revenue details on the tax treatment of investment properties.
Buy to Let rate options
A flexible choice of products
Just like a residential mortgage, with a Buy to Let mortgage you now have many different rate options available, such as fixed rate, tracker rates and even flexible products. As previously stated the property usually has to pass a rental assessment, and this is determined by the instructed Surveyors appraisal and other similar properties that have recently been let in the same area. Dependent on the amount you wish to borrow, you may not have a whole of market choice of lender. This is because Buy to Let lenders have significant variations in their lending criterias which mean that on the same property assessment different Lenders will offer varying amounts. Due to the declining Mortgage Market caused by a lack of liquidity in the money markets you can only borrow up to 75% of the property value currently, although again certain criterias will have to be met. A few lenders do not require any rental assessment to be made and will allow you to borrow based on your self declared income, or indeed a letter from a recognised letting Agent. A James Raynor consultant could explain the different options available to you in more detail.
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How much can I borrow?
Working out the maximum loan
The lending criteria used for Buy to Let Mortgages is very different to Residential lending. Instead of basing the maximum loan on the applicants income it is nearly always based on the annual rent amount that the property is assessed to be able to achieve. Buy to Let lenders have varying calculations that they apply in order to work out the maximum loan for each property, so it may not always be possible to obtain the loan size you require. By contacting James Raynor, we can help you to plan your Investment purchase.
Does it matter what my income is?
Certain criteria's need to be met
Most Buy to Let Mortgage lenders will use a rental income assesment in order to establish the maximum loan they will offer, however many have a minimum income requirement and this amount does vary from lender to lender.
Will I need to prepare accounts?
Don't ignore your responsibilites
If you own properties that aren't your main residence then you are obliged to prepare a self assessment return to the Inland Revenue each year. If you aren't happy to do this yourself, then we recommend that you employ the services of a suitably qualified Acountant. At James Raynor we recommend Brown Mcleod.
Should I use a Letting Agent?
There's no right or wrong answer
An Agent will reduce your rental yield considerably because of the effect their charges will have, but for some the services they offer are worth paying for. Like any Industry the Estate Agency Industry has it's fair share of critics, so choose carefully. There are bad apples in every industry field, and choosing the wrong Agent could seriously harm the return you receive on your investment! If you are confident and hands on, why not maximise your return by managing your property yourself. This means finding your tenant, checking their solvency and credit rating (arranging a reference), arranging a property Inventory (using a Specialist Company), preparing your Tenancy Agreement and then to minimise the risk arranging for a rent guarantee policy. You could stand to save substantial amounts, which could make all the difference! Use the web to educate yourself as to the rules and laws regarding being a Landlord, there's plenty of information on there and its' free.
Disclaimer
James Raynor is Authorised and Reulated by the FSA (463141). You may be charged a fee for the processing of your application and this fee and we estimate that this fee will be £195. Your Home is at risk if you do not keep up the repayments of a Mortgage or any other loan secured against it.
