A Guide to Buy To Let Mortgages
Investing in property is still a popular choice for many who feel that bricks and mortar give a better return of investment that a savings account.
If you’ve got enough funds to put down a decent deposit, buy to let can be very attractive. Mortgage rates are at a record low which also encourages investors to snap up property. One thing to consider when contemplating this investment is that landlords now have to pay an extra 3% on stamp duty, which is always something that you’ll need to bear in mind when budgeting.
If you are seriously thinking about investing in a buy to let property or you’re an investor who is looking to up their game, we have some tips to keep you on track and help you to be a good landlord.
As with any investment, the key is in the research. Make sure that you go into a property investment with your eyes wide open. It can seem like a good plan when thinking about it but remember that with any investment, property prices can swing both up and down.
Once you’ve found the property that you’d like to invest in, you’ll need to ensure that you can get a mortgage to cover the costs. This is a crucial part of the investment – get the wrong deal and you could end up with more costs than you anticipate. Finding the right mortgage for your buy to let will give you opportunity to maximise on your investment. Also, are you eligible to apply for a buy to let mortgage?
Funds For A Deposit
When making the calculations for your investment, don’t forget that you’ll need as big a deposit as possible. Lenders generally tend to require a larger deposit on buy to let mortgages than a standard home owner. Be aware that you could be asked for up to around 40% deposit.
Will the rent cover the mortgage?
When applying for a normal mortgage, the lender will take into consideration your income. When applying for a buy to let mortgage, the lender will consider the amount of rent that you will receive in order to cover the mortgage repayments. The typical potential rental income will need to be around 125% of the monthly mortgage interest repayments.
Calculate the rental yield
If you’re making an investment, it’s important to think about the potential returns that you’ll be getting back from it, on a yearly basis. The rental yield is the calculation of the rental income divided by the property value.
For example, an annual rent of £6,000 / purchase price of £100,000 would give a rental yield of 6%.
Don’t forget that with everything there will be extra costs involved in renting a property. From your rental income received, you’ll need to consider mortgage repayments, house insurance, agent fees if applicable and maintenance costs. This will all come out of the funds received each month.
Have you made the right calculations and can you cover all your costs?
Purchasing a buy to let property can be a great investment as well as being a fun project and a good resource for pension or inheritance. However just ensure that you’ve covered all the major thoughts when diving into this type of investment.
If you’d like to discuss your options with buy to let mortgages or if you’re on the lookout for a buy to let property, we’d love to help. Feel free to get in touch or visit us to find out more .