| There are 3 main differences in buy to let
mortgages:
Rent Potential - 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 even considered.
Interest Rate - buy to
let mortgages have slightly higher interest
rates.
Larger Deposit - typically
a minimum of 15% or 20% 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
as 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 other
costs involved in addition to the monthly
mortgage repayments. As a guide, you should
be aiming to achieve a gross rent of about
130% of the rental property's interest only
mortgage repayments in order to cover your
costs should anything go wrong.
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.
When choosing a property to let it is wise
to take advice from local letting agents
to determine what type of properties are
in need and in which parts of the town is
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.
There are a number of tax issues that need
to be looked at in order to maximise your
tax position, such as being able to offset
your maintenance costs, letting agent fees
etc as well as any interest paid on a buy
to let mortgage against your tax.
SBK Letting offers a complete range of letting
options and can be contacted on 01489 570019. |
