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Buy to Let Mortgages
Many people already have some experience of investing in the property market through owning their own home. However buying to let is very different to buying somewhere to live. It is often useful to think of it in terms of starting a small business. You need to do your homework before you take the plunge so your investment doesn’t end up costing you money rather than making it. It is essential therefore you seek professional advice through a registered mortgage broker such as Michael Knight Mortgages.
Are there any risks?
Yes. The property market is not always plain sailing and prices can fall as well as rise. Because of this buying to let should be seen as a long term investment. In addition your income may also be affected greatly if there are significant periods when your property remains empty.
What are the tax implications?
It is important that you receive tax advice if you are thinking of buying to let. You will be charged tax against the net income you receive from rents. However, deductions may be claimed for the costs of any maintenance, such as insurance, mortgage interest, agent’s commission and other reasonable management expenses (but not improvements). A wear and tear allowance of 10% of the rents received may also be deductible if the property is furnished. Because the property isn’t your primary residence you could be charged capital gains tax when you sell it, if it has increased in value.
You may receive some gains relief, which will be determined by the length of time you have owned the property. Tax assumptions are based on our understanding of current legislation that may change. Tax relief will depend on your individual circumstances.
Can a letting agency manage your property?
Although it is possible to manage the property yourself, you may prefer to have a professional letting agency manage it for you. You will pay about 10 to 15% of your gross rental income to a letting agent to manage your property. In return you can expect to find an experienced agent who will know the local market and will help you to find suitable tenants, draw up tenancy agreements, collect rent and notify your lender when your tenants change. You can obtain details of letting agents from the Association of Residential Letting Agents (ARLA) provided by external sites.
How much can you borrow and how much deposit is required?
With a normal mortgage the maximum amount you can borrow is based on your income. With a buy to let mortgage the amount you can borrow is calculated differently. Instead of your income it is based upon the expected rental income and this can be between 100% to 130% of the mortgage payments on an interest only basis. Typically you will need to put down a deposit of at least 25% of the property value although some lenders will accept lower amounts. However, the major influence on the maximum borrowing amount is the potential rent achievable on the property.
What tenants are acceptable?
It depends on the lender, for example some lenders may not lend on properties occupied now, or in the future, by Department for Work and Pensions (formerly the DSS) tenants. Employed people and students are acceptable.
How will I find a tenant?
Most letting agencies offer a tenant finding service whereby they advertise your property, conduct viewings and take references and undertake credit checks on prospective tenants. Once contracts have been signed you take over management of the property. Tenants can also be found by advertising your property in the paper or on the internet. Family and friends may also know of someone looking to rent a property.
What properties are acceptable?
Property must be suitable for letting - it must be in an area where there is good demand for rented property and the monthly rent is of a fair level for property and location. Some lenders are happy to lend on current or ex-local authority flats whereas others are not. Freehold properties are suitable, as are leasehold properties with at least 40 years remaining at maturity of loan. When choosing a property, think about what type of tenant you will be wishing to attract, for example do you want students, families or professionals. Location and decorative order will have an effect on the desirability of your property.
The tenancy agreement
You and your tenant(s) will have to both sign a tenancy agreement. The most common form is a six month assured shorthold tenancy. This protects both you as the landlord and the tenant(s).
And what are your legal responsibilities
You will also need to be aware of your legal responsibilities, such as carrying out repairs, ensuring the safety of gas and electrical appliances and that all furniture and furnishings meet fire safety regulations. It will also be important to familiarize yourself with landlord and tenant law, to understand those responsibilities you have as a landlord and the rights that your tenants enjoy. This is an area you may wish to take legal advice about. The Department of the Environment, Transport and the Regions (DETR) have published a useful guide for landlords in England and Wales called “Assured and assured shorthold tenancies” which is free from the DETR and can be obtained on 0870 1226 236.
Many people already have some experience of investing in the property market through owning their own home. However buying to let is very different to buying somewhere to live. It is often useful to think of it in terms of starting a small business. You need to do your homework before you take the plunge so your investment doesn’t end up costing you money rather than making it. It is essential therefore you seek professional advice through a registered mortgage broker such as Michael Knight Mortgages.
Are there any risks?
Yes. The property market is not always plain sailing and prices can fall as well as rise. Because of this buying to let should be seen as a long term investment. In addition your income may also be affected greatly if there are significant periods when your property remains empty.
What are the tax implications?
It is important that you receive tax advice if you are thinking of buying to let. You will be charged tax against the net income you receive from rents. However, deductions may be claimed for the costs of any maintenance, such as insurance, mortgage interest, agent’s commission and other reasonable management expenses (but not improvements). A wear and tear allowance of 10% of the rents received may also be deductible if the property is furnished. Because the property isn’t your primary residence you could be charged capital gains tax when you sell it, if it has increased in value.
You may receive some gains relief, which will be determined by the length of time you have owned the property. Tax assumptions are based on our understanding of current legislation that may change. Tax relief will depend on your individual circumstances.
Can a letting agency manage your property?
Although it is possible to manage the property yourself, you may prefer to have a professional letting agency manage it for you. You will pay about 10 to 15% of your gross rental income to a letting agent to manage your property. In return you can expect to find an experienced agent who will know the local market and will help you to find suitable tenants, draw up tenancy agreements, collect rent and notify your lender when your tenants change. You can obtain details of letting agents from the Association of Residential Letting Agents (ARLA) provided by external sites.
How much can you borrow and how much deposit is required?
With a normal mortgage the maximum amount you can borrow is based on your income. With a buy to let mortgage the amount you can borrow is calculated differently. Instead of your income it is based upon the expected rental income and this can be between 100% to 130% of the mortgage payments on an interest only basis. Typically you will need to put down a deposit of at least 25% of the property value although some lenders will accept lower amounts. However, the major influence on the maximum borrowing amount is the potential rent achievable on the property.
What tenants are acceptable?
It depends on the lender, for example some lenders may not lend on properties occupied now, or in the future, by Department for Work and Pensions (formerly the DSS) tenants. Employed people and students are acceptable.
How will I find a tenant?
Most letting agencies offer a tenant finding service whereby they advertise your property, conduct viewings and take references and undertake credit checks on prospective tenants. Once contracts have been signed you take over management of the property. Tenants can also be found by advertising your property in the paper or on the internet. Family and friends may also know of someone looking to rent a property.
What properties are acceptable?
Property must be suitable for letting - it must be in an area where there is good demand for rented property and the monthly rent is of a fair level for property and location. Some lenders are happy to lend on current or ex-local authority flats whereas others are not. Freehold properties are suitable, as are leasehold properties with at least 40 years remaining at maturity of loan. When choosing a property, think about what type of tenant you will be wishing to attract, for example do you want students, families or professionals. Location and decorative order will have an effect on the desirability of your property.
The tenancy agreement
You and your tenant(s) will have to both sign a tenancy agreement. The most common form is a six month assured shorthold tenancy. This protects both you as the landlord and the tenant(s).
And what are your legal responsibilities
You will also need to be aware of your legal responsibilities, such as carrying out repairs, ensuring the safety of gas and electrical appliances and that all furniture and furnishings meet fire safety regulations. It will also be important to familiarize yourself with landlord and tenant law, to understand those responsibilities you have as a landlord and the rights that your tenants enjoy. This is an area you may wish to take legal advice about. The Department of the Environment, Transport and the Regions (DETR) have published a useful guide for landlords in England and Wales called “Assured and assured shorthold tenancies” which is free from the DETR and can be obtained on 0870 1226 236.
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Web Design by Michael Knight 2009
Web Design by Michael Knight 2009
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it
The guidance and/or advice on this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK
Michael Knight Mortgages is an appointed representative of Lifetime Insurance Mortgage Experts Ltd, which is authorised and regulated by the Financial Services Authority for regulated mortgage
and insurance business only. Lifetime Insurance Mortgage Experts Ltd is entered on the FSA register (http://fsa.gov.uk) under reference 311266.
Michael Knight Mortgages, 8 Bramley Court, Abbey Rise, Wollaston, Wellingborough, NN29 7QA
The guidance and/or advice on this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK
Michael Knight Mortgages is an appointed representative of Lifetime Insurance Mortgage Experts Ltd, which is authorised and regulated by the Financial Services Authority for regulated mortgage
and insurance business only. Lifetime Insurance Mortgage Experts Ltd is entered on the FSA register (http://fsa.gov.uk) under reference 311266.
Michael Knight Mortgages, 8 Bramley Court, Abbey Rise, Wollaston, Wellingborough, NN29 7QA