Buy to Let Investment
There may be many reasons why you want to make a buy to let investment. It may have been a long held dream; a way to generate an income or simply be a better way to invest your money than have it sitting in a bank. Whatever your motivation, read on for advice on how to get a buy to let mortgage.
How to Get a Buy to Let Investment Mortgage
Firstly, let’s look at the key points you need to consider before making the leap into property investment.
- There is a minimum deposit required: because of the higher risk involved in buy to let investment, you will normally be required to pay a larger deposit of usually around 25%.
- The anticipated rental income is used to assess the amount that can be borrowed. This calculation will vary with different lenders.
- Usually, you should already own a home yourself, either outright or with a mortgage. Then, much like for all mortgage applications, your lender will assess your financial situation.
- Many lenders would expect potential landlords to be earning at least £25,000 a year.
- Have a good credit rating: large levels of debt on a credit card, for example, are a red flag to a lender.
Types of Mortgage Available for Buy to Let Investment Mortgages
- Fixed rate mortgages: a fixed rate mortgage deal usually lasts between two to five years. With this type of mortgage, your monthly interest payments will be consistent for the full term of the initial scheme, giving you the security of knowing how much you will be paying each month. This consistency could then be passed on to your tenants by guaranteeing their rent won’t rise. However, once your fixed rate period is over, you will be automatically rolled on to your provider’s standard variable rate, which is often more expensive. Make sure you start looking around before the end of your fixed term mortgage. Obviously we can help with this.
- Standard variable rate: the main advantage to a standard variable rate mortgage is that you are free to find other deals without any exit fees. However, these mortgages are usually the most expensive with the highest interest rates with the added unpredictability of your lender being able to change the rates at any time.
- Tracker mortgage: a tracker mortgage does exactly what the name suggests by tracking the Bank of England’s base rate. It is more difficult to budget your payments with a tracker mortgage as your payments will rise and fall in line with the Bank of England’s base rate. You will benefit from lower repayments when the rate goes down and incur higher repayments when it rises.
- Discounted variable: as with a tracker mortgage, your payments will move up and down below your lender’s standard variable rate (SVR) by a fixed amount. For example, if the SVR is secured at 3% and your discounted rate is fixed at -1%, you will be paying an interest rate of 2%.
What are Additional Costs to a Mortgage for a Landlord?
Your monthly interest payments are not the only costs you will incur when becoming a landlord. There are other costs involved that you need to include in your budget when considering taking out a buy-to-let mortgage which include the following:
Letting Agents Fees
Typical charges for management of the property you are letting can be between 10% to 17% of your monthly rental income. For this, they manage your property and carry out credit checks on tenants, write contracts and chase unpaid rent.
What type of landlord insurance you choose depends on the particular risks you want to be covered against. Whether you want to protect your building against damage and yourself against compensation claims, or protection against legal fees, if your tenant fails to pay for two or more months, liability, lost rent and more.
The amount of tax you pay on the profit from your buy to let property is subject to your total taxable income. If you pay the basic rate of tax then you will pay 20%; if you’re a higher rate taxpayer, you will pay 40% and if you’re in the additional rate bracket you will pay 45%. Certain expenses can be offset against the profit made, to reduce the tax liability. Correct at time of writing in June 2022.
It’s important to make sure you have some back up funds to help cover the period between tenancies, where the property may be empty.
Maintenance & Miscellaneous costs
It’s important to not underestimate the maintenance costs for your buy to let investment property. Understanding what’s involved helps you to plan your finances. These are some of the main maintenance costs for landlords:
- Letting agency fees
- Health and safety measures, such as gas safety certificates and Energy Performance Certificates (EPC), Electrical Test Certificates
- Finding tenants
- Credit checks
- Legal and other costs e.g. Stamp Duty (2nd property SDLT)
Entering the buy to let property world with a full understanding of maintenance costs is vital to make the most out of your investment.
How to Get a Buy to Let Mortgage
The buy to let investment mortgage market is huge and complex, so if you’re wondering how to get a buy to let mortgage, expert advice tailored for individual borrowers is invaluable.
Here at Stuart Brown Mortgage Services, we are specialist mortgage brokers with years of experience and access to the entire market. We can tailor mortgages specifically for investment properties. For more information, contact us today.