It is widely acknowledged that the people of the UK prefer to live in their own homes rather than live in rentals. However, presently, a large section of the residents in the UK are living in rented spaces.
Being a landlord is an appealing prospect and buying to let is a prominent investment option to receive a steady income and profits from capital appreciation. Our estate agents in Rainham can assist you with their vast experience and extensive local knowledge if you want to rent or let a property.
What is a buy-to-let Mortgage?
This is a kind of mortgage that is designed especially for those people who are specifically interested in the purchase of property, only to rent it out to tenants. Buy-to-let mortgage is completely different from residential mortgages, as they are provided to buyers who are interested in buying a home to live there.
However, if you want to rent out your main home to a tenant for a short period, you require to get a ‘consent to let’ mortgage from your lender and not the buy-to-let mortgage. This is like seeking permission to rent out for a short duration of time like 2-3 years or the remaining period of your present-day mortgage deal. After the expiry of this grace period, you would have to shift to buy to let mortgage.
How do Buy to Let Mortgages work
Here is a list of the prime considerations on which buy-to-let mortgages operate.
- Buy-to-let mortgages can be had on an ‘interest only’ basis, meaning you will have to pay the original sum at the end of your mortgage term while paying the interest accrued during the term of the loan.
- A landlord would have to provide documents required for general checks before obtaining the mortgage, besides which proof of income expected to be generated from the potential property would also need to be provided. It should cover between 125%-145% of your monthly mortgage interest. In simple words, monthly income should be more than the mortgage interest to be paid by the borrower.
- A deposit value of 25% of the total cost of the property needs to be provided to be eligible for a buy-to-let mortgage. The higher your deposit the lesser the interest rates on your mortgage.
Eligibility Criteria of Buy-to-Let Mortgage
A person whose annual earning is 25000 pounds or more and is a homeowner (outright or mortgaged) is eligible for a buy-to-let mortgage. He should also have a good credit rating and should be debt free. He should be under the age limit preferred by the lenders. Usually, the upper age limit is 70-75 years.
Benefits and Risks
Let’s study the pros and cons of the buy-to-let investments as we have put together a list of the key considerations of the market before you take a dive into the property business as a potential landlord
Capital Appreciation
Although property prices witness a lot of fluctuations, it has been observed historically, that despite these oscillations, property prices always tend to rise over time and have served the interests of the owners with an increment in the value of a property.
Steady Income
A stable and continuous flow of income is ensured when you let out your property and it is especially helpful to people looking for an extra source of income or people who have retired and want to live comfortably.
Diversify
The old proverb warning not to keep all your eggs in one basket is a good example when it comes to diversifying your investments, to not keep all your money invested in a single class of asset.
Demand
Presently, the rental market is witnessing strong growth and a surge in demand. Since the mortgage underwriting rules have become stringent and with a visible lack of affordable housing, more people are opting for rental homes as their best possible substitute.
Workability
In recent years, the tax shifts have seen the growth of limited company buy-to-lets and a change in ownership type as well. Today the flexibility to build one’s personal portfolio is greater.
Rise in stamp duty
A 3% surcharge for an additional property is levied by the government, as buy-to-let investment entails a second property or many in a property portfolio.
Fall of Property Value
Property prices are always fluctuating, a landlord may witness a decline in his property value after he has purchased it.
Summary
Landlords and investors before opting for buy-to-let mortgages, should be ready to invest significant time and effort to maintain and manage their rental properties, besides keeping themselves abreast with all the changes in rules and regulations. With strategic planning and research, investments in buy-to-let properties can be a great approach to increasing your income.
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