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Mortgages
An advisor with a difference

Why buy to let mortgages?

Your home may be repossessed if you do not keep up repayments on your mortgage.

Some buy to let mortgages are not regulated by the FCA

The UK has always been considered a nation of home owners, and so property has therefore always been a fairly stable and safe long term investment.

Due to the recent property market and interest fluctuations as a short term investment property is no longer a viable option, but there is still plenty of opportunity for those willing to play the waiting game. Buying to let can be used for a number of purposes; to provide an additional income, act as a nest egg into retirement or to act as a fully functioning business for those who want to become professional landlords.

Whether you are new to buy to let mortgages or an experienced landlord looking to enhance an already rich property portfolio, Taylor Rose Financial can find you an affordable deal and give you guidance and support throughout the buy to let process, helping make your buy to let mortgage work in your favour, whatever you want to achieve.

Risks and benefits of a buy to let mortgage

Taylor Rose Financial believe everyone should have all the facts in place before committing to a mortgage. With that in mind, we have created a guide designed to break down some of the risks and benefits that come with buy to let mortgages and what to look out for to help you find the right deal.

Benefits

  • When housing prices fluctuate continuously and are uncertain people aren’t as keen on buying property and would prefer to rent until there is market stability, meaning rental return potential is high
  • They offer good income potential or would make a good retirement investment
  • There is the potential for capital appreciation in the long term, as house prices often outstrip inflation
  • Buy to let mortgages are surprisingly affordable, with lots of options available and usually only a 20% deposit needed or even less
  • The concept of buy to let mortgages is fairly easy to understand, you purchase a property and rent it out to a tenant using their payments to pay off the mortgage and expenses, keeping whatever is left
  • Qualifying for a buy to let mortgage is based on potential rental return and not your personal income

Risks

  • damage to the property or may fail to pay the rent, all of which you will have to make up the shortfall  for
  • If you decide to sell your property then you will be subject to paying exit fees, solicitor fees and agent fees which all adds up
  • There could always be periods where you don’t have tenants in, but you will still have to pay your mortgage which could be difficult
  • Looking after your property and tenants can be a full time job in itself, you’ll have to vet the tenants, arrange maintenance and collect rent. If you are too busy and hire an agency to handle everything for you, this will cost you a portion of your rental profits
  • Ensuring the property conforms to legal standards, solicitor fees, stamp duty and the actual purchase cost will soon mount up, so you’ll need to know the returns you’ll make in the future will cover these
  • Purchasing the right property requires a lot of work and research, you need to make sure you are appealing to the right kind of tenants with the right property
  • Buy to let is a good long term investment, but in the short term will end up costing you before you see a return
  • You will have to pay income tax and capital gains tax on any profits accruing on the sale of the property which can be expensive

Reasons why buy to let is increasing in popularity

  • Can act as a good long term investment
  • Can provide a regular additional income
  • A good way to supplement your retirement income
  • Could sell later when you can no longer handle the property and use the money as a nest egg or to pay off debts
  • The need for rental properties is rising as people choose to rent rather than buy
  • Low interest rates make buy to let an increasingly attractive option

How buy to let mortgages work

To qualify for a buy to let mortgage you must have the intention of letting out the property to tenants after you have purchased it, although you do not need tenants in place before beginning the process. It’s a loan from a bank or building society for the sole purpose of letting the property and like a regular mortgage you will need to repay this loan over an agreed period of time, with the loan secured against your existing residential property.

The difference between a buy to let mortgage and a regular residential mortgage is the lending criteria for successful applicants. Rather than a mortgage dependant on your personal income, the lender looks at the potential rental income you can expect to make from the property.

Buy to let mortgage advice

It is always important to remember that when purchasing a buy to let property there are risks involved, so you will need to manage and limit those risks by having in place various risk management procedures.

Here we have outlined a few ways you can reduce your risk when purchasing a buy to let property.

  1. Do your research, pick the right area and be realistic about your returns. You will need to build some leeway into your rent to ensure you can pay any maintenance costs that may arise and make allowances for periods where you have no tenants in the property.
  2. Another way to reduce risk is by borrowing less, this is a cautious option and as long as you aim for a rental income 1.3 times your monthly mortgage repayments, you should be well covered for every eventuality.
  3. If you are busy and unsure whether you have enough experience or time to make a buy to let work for you, then you can manage this risk by hiring a good agent who will handle everything on your behalf, from sorting the right tenants, repair and maintenance of the property, to checking references and chasing tenants defaulting on payments. It will reduce your risk as well as stress and although you will have to pay an agent fee, it is often the most sensible option for people new to buy to let until they have the confidence to manage the property themselves.
  4. Have your tenancy agreement drawn up or at least checked by a legal professional, this way you know exactly what is in the contract, your responsibilities, the tenants responsibilities and can put your mind at ease.

Weighing the risks and benefits of a buy to let mortgage

In this guide we have given you a brief idea of some of the potential risks and advantages that come with buy to let properties, it is important that you understand all the risks involved as your residential property will act as security against your buy to let.

We always advise that before proceeding to the application process you have an idea of how you intend to manage some of the potential risks we have highlighted.

Should you require any assistance weighing out and managing the risks and benefits of a buy to let mortgage, please contact one of our advisors who will be happy to assist you further.

Company Registration Number: 08318842

Taylor Rose Financial Services Limited is an Appointed Representative of Intrinsic Financial Planning and Intrinsic Mortgage Planning who are authorised and regulated by the Financial Conduct Authority. Taylor Rose Financial Services Limited are registered in England and Wales.

Registration Number: 08318842 Registered Address: Northminster House, Northminster, Peterborough, PE1 1YN

© 2017 Taylor Rose Financial Services Limited. All rights reserved.

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