Buy-to-Let Mortgages – What You Need to Know
Buy-to-Let mortgages have become an incredibly popular investment vehicle in the last decade for people looking to generate money. But are their myriad of benefits and no drawbacks as is marketed by some estate agents? Below you will find the everyday issues that you would run into when launching your first buy-to-let mortgage, so without further ado, let’s have a look…
The Advantages – Let’s open with the funding of the mortgage, the major advantage is, that unlike a residential mortgage, a buy-to-let (BTL) mortgage is financed and approved on the back of future rental income instead of what your own income is at present. The rent that you must charge (it will be insisted on by the lender) will be in the area of 125-150% of the original mortgage payment. As an example, if the monthly mortgage payment is 600, your lowest rent must be 750 a month (125%) as you can see, if managed right, the majority of that amount can be monthly profit lining your pocket. To get the most out of rental profits, if you rent different rooms out within the same property you can charge more in rent, the student market is seemingly the best market for this type of rental. It’s not only the student market which BTL landlords like to pursue but as local councils alter from council housing to housing associations, the openings for landlords will multiply extensively, not to mention the fact that many wannabe first time buyers are forced to rent as they cannot meet the expense to get on the first rung of the property ladder give a profusion of options for a upcoming landlords. To help keep expenses low on a BTL mortgage, it is recommended (and most go for) an interest only mortgage as it keeps payments lower than the more customary repayment mortgage model, while at the same time offering more flexibility in the payment plan. The concluding advantage is also one established on flexibility, residential mortgages ban renting, if you are a first time buyer who fears meeting the repayments will not be achievable, it might be worth asking a mortgage consultant about taking on a BTL as it might be easier to rent the house you buy, use the profit to pay off more capital and continue to rent somewhere else.
The Disadvantages – There is always a reverse to many of the advantages discussed above; interest rates on BTL mortgages will be higher than on residential mortgages, not to point out that the same restrictions remain also, there is no flexibility to be had there. As for funding a BTL, the start up costs will be much larger also than for a first time buyer home, to fire off with there are some costs that will always be shared, Stamp Duty, solicitors’ fees, conveyance fees etc. Where the costs start to wander with a BTL, you are looking at reconstruction costs and specialist insurance might also be essential. Some lenders might insist you take on a letting agent to manage the property (as well as have assured short hold tenancies drawn up and ready to go); the charge a letting agent will remove will be something like 15-20% of the monthly rent, gravely eating away any likely profit you might secure. These costs all depend on the supposition you had enough money to get that far, the average BTL deposit rate is 25%, if you’re lucky you might be clever enough to find a 20% deposit requirement.
The other thing to be primed for is the mean time a property is empty for a year, which stands between 4-8 weeks a year, as the landlord you must have funds in place to deal with the mortgage when this comes about, some sort of emergency fund, which again will use up any profit you were hopeful to see from the rent. The remaining drawback to be recorded is the fact that administering a property and being a landlord can be an intense task, if you have, or are looking at in due course owning a number of BTL properties it can grow to be a full time job. So you have to be dedicated to the project and be geared up for the rough parts, there is no getting around the rough parts of letting out a property.
That fairly rounds off the advantages and disadvantages of a buy-to-let mortgage, the ups and down you can look forward to as the usual buy-to-let landlord. As with all things, personal circumstances are all poles apart so unexpected events can turn up, a lot can also depend on the tenants you consent to live in the property, making the right choice on this front can make the world of difference, so pick sensibly or at the very least let the letting agent earn his fee. It’s is the letting agents job to search potential tenants, this can include a credit check, make sure the tenant can afford the rent and oversee the drawing up of any contracts and holding the deposit. A letting agent can be high-priced, but they can take a lot of hassle off your plate, it just depends if you think it’s worth the extra capital or not.
Wilbur O’Chaffin works at JustMortgageAdvice.com, who specialise in first time buyer mortgages and look to find the best mortgage rates for all their customers, first time buyers or not.
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