HOW TO BUY TO LET

A UK GUIDE

According to the Landlords’ Association, there are now 2.6 million buy-to-let landlords in the UK. The buy-to-let property market is worth an estimated £1.5 trillion. Despite changes in the rules and laws regulating the buy-to-let sector, renting out property continues to be one of the most popular forms of investment along with cash savings, bonds and shares.

WHY BUY TO LET?

You have inherited a property and do not want to sell yet, but do not want the house left standing empty because of possible problems with maintenance.

WHY BUY TO LET?

5 REASONS TO CONSIDER BUY-TO-LET

NUMBER 1

You wish to invest some money but dislike the idea of stocks and shares because you consider them too volatile or risky.

WHY BUY TO LET?

5 REASONS TO CONSIDER BUY-TO-LET

NUMBER 2

You have the available cash to purchase a second property including a minimum of a 20% deposit for a second mortgage.

WHY BUY TO LET?

5 REASONS TO CONSIDER BUY-TO-LET

NUMBER 3

You have a good credit rating and earn at least £25,000 a year. A good credit rating is a must if you intend to finance your buy-to-let property.

WHY BUY TO LET?

5 REASONS TO CONSIDER BUY-TO-LET

NUMBER 4

You have the time to manage a buy-to-let property or are willing to hire a letting agent. Letting agents are useful but remember they charge fees.

WHY BUY TO LET?

5 REASONS TO CONSIDER BUY-TO-LET

NUMBER 5

The vast majority of buy-to-let properties are residential, but it is also possible to buy retail, mixed-use or commercial properties to rent out. However, you should be aware that it is more difficult to take out a mortgage from mainstream lenders for certain property types. These include flats over shops, ex-Council houses, new developments and HMOs (Houses in Multiple Occupation).

WHY BUY TO LET?

IMPORTANT FACTORS

TYPE OF PROPERTY

If you plan on being a hands-on landlord and taking over responsibility for all aspects of renting out the property, then it is much better to buy property locally to avoid expensive travelling costs. However, if you are going to use a letting agency, it is quite possible to buy property anywhere in the UK.

WHY BUY TO LET?

IMPORTANT FACTORS

LOCATION OF PROPERTY

Are your ideal tenants families, young professionals or students? Each would expect something different from their rented home. Families would like to be near good schools whereas students would want to live somewhere relatively near their university and have easy access to public transport.

WHY BUY TO LET?

IMPORTANT FACTORS

YOUR IDEAL TENANT

When viewing properties, consider the neighbourhood from a tenant’s point of view. Noisy neighbourhoods, rundown areas, houses located on busy main roads and residential properties in a commercial or retail district are always more difficult to rent out and reduce your potential rental yield.

WHY BUY TO LET?

IMPORTANT FACTORS

THE NEIGHBOURHOOD

It can be very tempting to purchase buy-to-let property which is being sold for under its market value, perhaps through a property auction. However, rules about the habitability of private rented accommodation in terms of health and safety are extremely strict. If the property does not meet these minimum standards, then you cannot rent it out and might have to spend a fortune making it habitable. You might also find it difficult to take out a buy-to-let mortgage.

WHY BUY TO LET?

IMPORTANT FACTORS

PROPERTY CONDITION

This is of course the easiest as you do not have to worry about borrowing. However, don’t forget to draw up a budget so that you have sufficient funds for all the associated expenses of buying property such as Stamp Duty and conveyancing fees.

BUY TO LET MORTGAGES

FINANCING YOUR BUY TO LET PROPERTY

USING YOUR OWN MONEY

If you already have a mortgage on your primary residence, then you could release some of the equity in the property by taking out a second mortgage.  Before making this decision, remember that if things go wrong financially, there is a risk that you could lose both your buy-to-let property and your family home.

BUY TO LET MORTGAGES

FINANCING YOUR BUY TO LET PROPERTY

REMORTGAGING YOUR HOME

Buy-to-let mortgages are available from mainstream lenders as well as from specialist lenders and mortgage brokers. A buy-to-let mortgage is not the same as a mortgage you take out to buy a home. There are a number of important differences. Let's take a quick look at those...

BUY TO LET MORTGAGES

FINANCING YOUR BUY TO LET PROPERTY

GET A BUY TO LET MORTGAGE

Fees charged by the lender are higher on buy-to-let mortgages. The interest rates on buy-to-let mortgages are higher than on mortgages for primary residences and lenders expect a larger deposit when you take out a buy-to-let mortgage. Although it can vary from 20%-40%, the best mortgage deals are for buyers putting down at least 40% of the property purchase price.

BUY TO LET MORTGAGES

FINANCING YOUR BUY TO LET PROPERTY

IMPORTANT MORTGAGE POINTS

For a residential mortgage, lenders consider your income and expenses when judging affordability. However, for a buy-to-let mortgage, their primary concern is your rental cover or how much money you will make in rent. They will be prepared to lend 125% of your monthly rental income although the PRA recommended in 2017 that lenders should add some extra leeway and test affordability on a rental cover of 145%.

BUY TO LET MORTGAGES

FINANCING YOUR BUY TO LET PROPERTY

IMPORTANT MORTGAGE POINTS

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