Buy to let mortgages are designed for landlords who buy property specifically to rent out. These mortgages tend to be more expensive than normal mortgages, but one great thing about them is that they can help you to become a property investor. This kind of mortgage isn’t suitable for everybody – only people who want to invest in houses and flats. It can be risky, so you should take out one of the mortgages if you can’t afford to take the risk! With that in mind, if you want to know more, here’s a comprehensive guide on making money with buy to let:
If you don’t already own your own home, whether this is outright or with an outstanding mortgage, you’ll struggle to get a buy to let mortgage. You’ll also find it hard to get a buy to let mortgage unless you earn at least £25,000 a year. You need to have a good credit record and not be stretched too much if you have other borrowings, like credit cards or an existing mortgage.
You usually need to be over 21, and there will be an upper age limit of 70-75. Many buy to let mortgages are interest only which means you don’t pay anything off the lump sum borrowed each month, but at the end of the mortgage term you have to repay the full amount you borrowed.
In many ways, buy to let mortgages work like normal mortgages, but with a couple of main differences. The interest rates on these mortgages are usually higher than normal mortgages, the minimum deposit for a buy to let mortgage is usually a quarter of the property’s value, and the fees tend to be a lot higher.
The Amount You Can Borrow
The maximum amount you can borrow is linked to the amount of rental income you expect to receive. Lenders will usually require that the rental income you think you’ll make be a quarter higher than your mortgage payment. You can speak to local letting agents to discuss what your estimated rent might be. If you plan on moving into the property in the future or moving a family member in, then a buy to let mortgage may be treated in the same way as a standard mortgage taken out to buy your own home. You’ll need to budget for all of the costs associated with taking out a mortgage, including insurance from http://www.discountlandlord.co.uk/.
Where You Can Get a Buy to Let Mortgage
Many big banks and a large number of specialist lenders offer buy to let mortgages. You would be wise to speak to a mortgage broker before you take out a buy to let mortgage, as they will help ensure you choose the most suitable deal for you. Show them if there’s anything you’ve found and see if they can suggest something better. A whole market broker will be able to compare mortgages offered by the majority of the lenders.
What About When There’s No rent Coming in?
You shouldn’t assume that the property you choose will always have people living in it. Plus, even if you do always have tenants in it, they might not be great tenants who manage to pay their rent on time. There will almost definitely be a void when your property is unoccupied. This could be a few weeks or a few months, so you should definitely have some finances to fall back on so you can definitely meet your payments. It’s a wise idea to save some of the money you get from the rent to create a savings account for times like this. You may also need more cash when a big repair bill comes in.
Buy to Let and Tax
If you end up selling your buy to let property for a profit, you will have to pay capital gains tax if your gain happens to exceed the annual capital gains tax threshold. Also, rental income that exceeds your mortgage interest payments and certain other allowable expenses is liable to income tax. Make sure you do your research to know how much tax you’ll be paying.
Building a Buy to Let Empire
The number of buy to let loans being taken out are at the highest level for years. You should treat buy to let as a business. Make sure this kind of business is right for you before you get started, as it definitely won’t be easy. You shouldn’t think of it as an investment. It’s a massive commitment and you could make a big profit, but think of it as you would any business. Do your sums first. You’ll need a large amount of cash behind you in order to buy your rental property. You’ll probably need a 25% deposit to get started. Bear in mind there will be a lot of things you’ll need to pay for, including redecorating costs when you get new tenants and unexpected bills when things break.
It’s essential that you find the right property by understanding the local market. What demand is there? What kind of person would you like to rent your property to? There are students, families, and professionals to choose from. You’ll then need to pick a property that will suit the market you’re targeting.
Check Out Agents
Being a landlord is hard work. You might get a phone call late one Sunday night, to get told that the toilet in your property won’t flush. This is up to you to sort out! You can find a lettings agent to do some or all of this work for you, if you like. Some of the work will include advertising, finding a tenant, and collecting the rent (you’ll pay around 11% of your rental income). You can also get a full management deal, where the lettings agent will do everything so you don’t have to lift a finger (costing you 17% of your total rental income).
Before taking on something like this, make sure you know what you’re getting yourself into. It’s the perfect way to make some extra cash for some people, but it isn’t suitable for others. Do your research first!