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Buy To Let Mortgage

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The main difference with a Buy to Let mortgage, from other mortgages, is that the lender considers the rental values earned from the property as the primary source of income. Typically lenders will want prospective rental income, which needs to be verified by independent sources, to a minimum 125% of the monthly interest payment on the loan. They may also take into account the landlord’s personal income.

It is never easy predicting future trends however demand for the rental sector is likely to remain steady and may potentially grow. Finding the good options for a Buy to Let mortgage has become more complex. Linear’s expert advisors help find the best deals, so that you may maximise profit and plan your portfolio. by understanding your strategy both now and in the future.

If you are planning your first Buy to Let project then read our Buy to Let tips and advice below.

There is no guarantee that it will be possible to arrange continuous letting of a property, nor that rental income will be sufficient to meet the cost of the mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage. Most Buy to Let mortgages are not regulated by the Financial Conduct Authority. Linear’s mortgage advisors can help you get the right mortgage for you.

Buy to Let Tips and Advice
Being a landlord is not just about owning a property, it should be looked at as a business venture with the objective to run an efficient and profitable service. It is important that you make a sound assessment of a) its investment potential b) risk c) your personal skills and capabilities of running a buy to let business.

Deciding to become a landlord
As a first step, you should consider the following:

• Do you have the spare time?
• Are you ready to seek out facts and information?
• Are you prepared to accept responsibility on issues of safety?
• Are you willing to consult others for advice?
• Are you prepared to accept an element of risk involved in making a business deal?

As a starting point, you must:

• Understand an assessment of the profitability of your proposed property to let
• Be aware of your legal obligations / safety issues
• Be tax aware – download a copy of our up to date tax guide which aims to set out the basics – this is a good starting point for you
• Get advice, speak to a solicitor and mortgage broker to find the best buy to let mortgage deal available, Linear’s expert advisers can help with this

Can you profit from a buy to let?
It is important you calculate the costs and returns of a buy to let property. It’s important to do careful calculations about your returns and costs before you purchase a property to let. As an initial guide, you need to ensure that your turnover (i.e. rent) is in excess of the costs of buying, funding and maintaining the property. To do this, on average, your rent should exceed your running costs by 25-30%.
To work out whether a property is likely to be a good investment, you need to work out all of the costs that you will incur and what the potential returns are. Start by correctly breaking down the costs including the costs of buying the property, the costs of running the property and the costs of selling the property.

When buying a property
There are many costs to consider such as mortgage arrangement fees, broker fees, survey fees, legal fees and stamp duty. Click here to see a list of likely one-off fees that you need to aware of, this will help you with your budgeting. In addition to these costs, you will also need a deposit that is typically 25% of the property’s value. Some new-build properties, especially city centre flats, currently require a deposit as high as 30%. This is due to the fact that mortgage lenders consider them higher risk following the credit crunch, and because there is an oversupply of flats in some areas. Linear’s mortgage advisors will be able to advise you on this.

The costs of running a buy to let property
Can vary due to many different factors. The highest cost of a buy to let investment is typically the mortgage, so it is extremely important to make sure that you keep this as low as possible throughout the let. Linear’s mortgage advisors will help you find the best mortgage deal for your circumstances. You also need to consider letting agent set-up fees and on-going management costs (if you decide to go down this route), the cost of finding a tenant, buildings insurance, gas and electricity safety certificate and landlord’s insurance to cover things like bad tenants and damage as well as on-going maintenance costs. You should also take into account the likelihood of the property being empty for periods, during which time you will not be receiving rent.

Example: Take a typical Buy to let property worth £185,000:

Capital costs;

Mortgage of 75% of £185,000 = £138,750
Stamp duty at 1% = £1,850
Deposit = £46,250

The on-going financial costs;

Annual mortgage costs on an interest-only mortgage £138,750 @ 6% = £8,325
Building and contents insurance = £338
Gas and electrical safety certificate = £150
Landlords insurance = £300

On-going lettings costs;
Agent set-up fee = £200-350
Cost of finding a tenant = 10% of annual rental income
Letting management costs = 2-5% of annual rental income

The costs of selling a Buy to Let property
When it comes to selling your property (although a buy to let property should be a long term investment) there are costs to take into account such as a Energy Performance Certificate, estate agency fees, legal costs and any removal fees. As a rule of thumb, selling a property costs approximately 2% of the sale price where this is less than £250,000 and 2.5% for any sale prices over this amount.

Calculating the investment returns
It is important that your property (or portfolio) is making a good return versus other types of investment. To compare how well your property is doing, you will need to calculate the return on your investment – both on an annual basis and over the time that you intend to hold the property. The return is usually referred to as ‘yield’ and the way this is calculated can vary, but typically there are two methods that you need to consider: Annual gross yield and Return on investment.

Annual gross yield
Is an expression of the net income as a percentage of the capital investment. To calculate this, first work out your net rental income (the total rental income minus any letting costs). Then divide this figure by the amount of money you invested in the property including your deposit and any property purchase costs. The average annual gross yield for a buy to let property ranges from 4-10% depending on the type of let.

Return on investment
Is an expression of the total return, including all income and capital growth minus costs, as a percentage of your capital investment.
Information supplied from WHICH.

Think carefully before securing other debts against your home. Your property may be repossessed if you do not keep up repayments on your mortgage.