Becoming a private landlord should not be seen as an easy way of making money. It can be riskier and more complicated. It can also be very time consuming, more than most forms of investment, and there is no guarantee that house prices will rise. That said, having a second property to let to tenants could reap considerable financial rewards over time.
There are 3 main differences in buy to let mortgages:
The decision as to whether or not a mortgage will be offered is usually based on the rent you will earn as well as your income. In some cases your income is not ever considered.
Buy to let mortgages have slightly higher interest rates.
Typically a minimum of 20% or 25% of the property's value is required as a deposit.
When buying a second property to let, you will need to decide whether your primary objective is income or capital growth. In other words, are you looking to make a profit month on month or are you looking to make a profit through increased equity from the second property if it increases in value over time? The decision may affect the type of property you purchase, and the location. When you manage a property there are many costs involved in addition to the monthly mortgage repayments. A prospective landlord needs to be aware that the rental income typically needed between 125% -145% of the mortgage repayment, although this can vary between lenders.
These additional costs include:
Property upkeep - maintenance costs for the property.
Letting agent's fees - letting agents charge around 10% of the monthly rent for finding and vetting tenants with an additional cost of around 5% if you require a full management service.
Ground rent / service charges - applicable to leasehold properties.
Legal insurance - to cover costs from evicting tenants in the event of non-payment, very important, as this can be very expensive.
Insurance - building insurance and contents insurance for the items provided as part of the rental agreement.
Furnishings - the purchase of any furniture. If the property is to be let furnished, make sure you are covered for this by your home insurance.
Gas / electrical appliances - cost of maintaining appliances and ensuring they comply with any regulations such as safety tests.
Decorating costs - the property may require work ranging from painting, to a new bathroom suite before it is suitable for letting to tenants.
Stamp Duty Land Tax
Arrangement Fees and Booking Fees - These costs may be higher than those associated with a standard residential mortgage.
When choosing a property to let, it is wise to take advice from local letting agents to determine; what types of properties are in need and which parts of the town are best or most wanted. They can tell you if there is a University in the town, and if students are looking for somewhere to live.
Some Buy to Let mortgages are NOT regulated by the Financial Conduct Authority.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
There will be a fee for this advice. The exact amount will depend on your circumstances but we estimate it will be £299.
The Thurrock Mortgage Clinic Ltd is an Appointed Representative of Mortgage Intelligence which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only.
We always aim to provide a high quality service to our customers. However, if you encounter any problems and we are unable to resolve them you can take your complaint to an independent Ombudsman. Our advice is covered under the Financial Ombudsman Service (https://www.financial-ombudsman.org.uk/consumer/complaints.htm). You may be able to submit a claim through the EU Online Dispute Resolution Platform (https://webgate.ec.europa.eu/odr/main/?event=main.home.show if you live outside the United Kingdom or if you prefer not to deal directly with the Financial Ombudsman Service)
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