The Essential Buy to Let Guide
What is Buy to Let and how does is work?
Buying to let put simply, is owning one or more properties which you do not live in. The property type can be anything from a small 1 bedroom flat to a large country estate. Owners are renting out the property in order to generate a rental income, which in turn can be used to cover a buy to let mortgage, or to supplement existing income if the property is unencumbered (mortgage free).
What is a buy-to-let mortgage?
A buy-to-let mortgage is a mortgage product designed specifically for people who wish to purchase property as an investment and not as a place to live in. If you plan to rent out a new property, most lenders will not finance your purchase with a standard residential mortgage.
Who are buy-to-let mortgages for?
Buy-to-let mortgages are powerful tools both for professional investors and for people looking to take their first steps into becoming a landlord. Buy to let mortgages are more expensive than typical mortgages, and usually require deposits of between 25% and 40%.
How does a buy-to-let mortgage work?
Most people look for an interest-only mortgage for their investment property. They then only pay the interest on the mortgage as it accrues each month, this is funded through the rental generated by the property. The mortgage amount reamins as originally agreed and is settled at the end of the mortgage term. A mortgage broker can help you understand your options.
Should I target good rental return or capital property growth?
Alot of people find themselves as accidental landlords, having moved in with a partner or relocated for work whilst retaining their main home. People who are actively investing in property in either a semi or professional way are called portfolio landlords. As a portfolio landlord having all of your investment eggs in one type of basket is seen as risky by some, a mixed portfolio gives the best of rental yield returns and capital growth. An example of this might be city centre flats – These may not have much capital growth potential but will likely generate a good rental yield, while large detached properties will generate les yield but may enjoy larger capital gains.
Can anyone be a landlord?
If you can own a property in the UK then chances are you can become a landlord. Doing so comes with a lot of responsabilities however. Your tenants must be protected under an assured shorthold tenancy (AST) giving you and your tenants protection. Most AST’s will usually be for period of 6 or 12 months and it will detail rental amounts and payment terms aswell as documenting who is responsible for bills, maintenance and repairs etc.
Tenants usually have to pay a deposit, and the landlord has a legal obligation to protect this using a government approved deposit protection scheme.
Currently there are 3 providers:
Deposit Protection Service (DPS)
MyDeposits
Tenancy Deposit Scheme
The schemes are setup to safeguard both the tenant and the landlord when dispustes arise .