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Buy To Let Mortgages
Is Buy-to-Let still a good investment in 2015?
Despite the general gloom in the housing market, the Buy-to-Let market can still be an attractive investment as long as care is taken in the selection of the property. A recent survey of landlords has found that they are feeling more confident about the Buy-to-Let market, which is an improvement on recent years.
However, Buy-to-Let mortgages can still be difficult to obtain - there are often high arrangement fees or requests for a sizeable deposit. The high amount of repossessions and a generation of would-be first-time buyers who just cannot afford to get on the bottom rung of property purchase, has made rental properties in high demand in 2015.
Tenant demand for rental property continues to strengthen, especially
amongst first-time buyers, who are unable to afford even starter prices
and are increasingly postponing their first mortgage and renting for
Buy to Let Mortgages
Buy-to-Let mortgages are no longer expensive - the interest rate available on a buy-to-let mortgage is generally not significantly higher than those on standard mortgages. Landlords have a choice between interest only and repayment mortgages.
Fixed rate buy-to-let mortgages are popular because buy-to-let investors want to know exactly what their costs are versus rental income - allowing them to budget carefully and preventing the worry of fluctuations in interest rates.
Because buy-to-let properties are not homes but financial assets, selling can be easier - especially if there are assured tenancies.
What is involved in obtaining a buy to let mortgage?
are some differences to the standard mortgage application - lenders
approve a loan on the likely rental income from the property and not
from the applicants' income. You need to be a home owner and have a
minimum 15% deposit.
income needs to be at least 130% of the mortgage repayment and provide
an annual yield of more than 8% of the mortgage.
Funds need to be found to cover the letting agent's fees, repairs, decoration, insurance and any other expenses associated with renting out a property. The average landlord spends £2,200 on furnishing a new rental property.
Important Buy-to-Let considerations
The property location is all important - unpopular choices with Buy-to-Let mortgage lenders are ex-council properties, high-rise block flats, or residences positioned above shops. Find an area that does not have expensive property prices or it may prove difficult to get the rent to cover mortgage payments.
Buying locally is the easiest option, but if further afield is your choice then you can use a letting agent to manage the tenancy. Letting agents generally charge around 15% of the rental.
Try enquiring as a prospective tenant in the area in order to gain a real insight into potential income rental.
Decide on the type of tenant you are going to appeal to, and whether
you are going to offer short term or long term lets. Short term tenancies
provide higher rental incomes, but you may need to compensate for more
Be careful about competition where you buy, although tenant demand remains strong too many available properties will hold rents down - careful research into the local area is vital.
Strong employment, easy access to motorways, a university - student
numbers boost demand, and a young population are good indicators for
rental potential. The Government plans to have 50% of young people aged
18-30 enrolled in higher education, so creating a healthy investment
market for buy-to-let landlords.
Take local amenities into consideration - proximity to shops, schools, rail links can increase the value of and demand for the property. Areas where transport developments are planned can also be a good renting location.
It is recommended that anyone considering buy-to-let should budget for at least two months a year without tenants. It is worth considering taking a lower rent than you aimed for if it means the property is not left empty.
Buying a property 'off-plan' - meaning before it is actually built - has the big advantage that the property will come with a structural guarantee.
Buy-to-let is a popular choice for investors, especially when stock market returns are looking uncertain. However, borrowers need to consider buy-to-let as a long-term investment in terms of capital growth and income profit. Most professional landlords' main aim is for capital growth over the long term - a 5 to 15-year period.
Investment in bricks and mortar can be a golden nest-egg to supplement your pension, if you buy well - in the right location with plenty of tenant demand.
Buy To Let Mortgage - Find a Good Tenant
Becoming a landlord can be financially rewarding and like any other
job - when you do it well it can be very satisfying.
Top Landlord Tips
When you are ready to let your property and find a tenant you will
need a proper written Letting/Tenancy Agreement. Anyone is able to
draw up a Tenancy Agreement, but it should be properly witnessed on
signing by an independent witness. Many professional landlords still
prefer to have this prepared by a solicitor. If you are planning on
letting your property for more than three years you will legally need
a Lease by Deed - this requires a solicitor or conveyancer.
Tenant Application Form
It is advised that you also get your prospective tenants to complete a comprehensive Application Form - include identification evidence, accommodation and employment record, income, credit history, references and personal details, such as: have they any children, pets, are they a smoker, how many people will be living in the property?
The application should also cover the length and type of letting, the basic terms and the rent and deposit required. The application also informs the tenant that credit checks and references checks will be made in accordance with the Data Protection Act. The more details you have officially in writing the better.
The application is an important part of your screening process for a good tenant. Remember, once a tenancy agreement is entered into it can be difficult for landlords to evict troublesome tenants.
Always check the prospective tenant's credit history and identity checks, and take up the references given. It's advisable to verify the references by telephone. If you talk to a previous landlord enquire about promptness of rent payments, any lease violations, noise levels or any complaints from other tenants. A future problem tenant can seem perfectly valid and respectable - check, check and check again before you hand over the keys to your front door! Most landlords worry most about not having a tenant in their rental property, but having a problem tenant can give you more headaches and work out more expensive in the long run.
Ensure you go through all the checks - a genuine tenant will understand the time involved. If you are not positive you could ask for a Surety Agreement from a relative willing to act as a guarantor, but trust your instincts and only rent to those tenants you feel comfortable with. If both parties are keen to proceed then you can take a holding deposit, while you go through the checks.
Tenancy Deposit Scheme
Landlords need to be aware of the Tenancy Deposit Scheme. All deposits given to landlords for an Assured Shorthold Tenancies (covering most residential letting from 6 months up to 7 years) in England and Wales, must have a Tenancy Deposit protection scheme. This means the deposit must be lodged either with the custodial scheme - this is free to use, or there is an alternative insurance-based scheme. With the insurance plan the landlord retains the deposit and pays an insurance premium to protect against failing to repay the tenant the deposit, in case of any dispute. Informed Landlord
Depending on your target tenant market, you may need to be current regarding the Housing Benefits system and student loan finances. Your property and its location tends to dictate your market. The professional and company let tenant is generally less problematic, but not always as lucrative.
A well organised, informed and professional landlord is also more likely to gain support from the various authorities you will need to deal with, such as: your local authority, The Fire Officer, The Environmental Health, etc. Keeping current with all the latest regulations and rules involved with renting and tenants' rights is vital for success as a landlord.
It can be very useful to join your local Landlord's Association - you'll find lots of information and help from experienced landlords and advice on regulations.
How to be a Top Landlord
If you treat your tenants with respect, offer a well-maintained value-for-money property, provide a professional landlord service and carefully select your tenants, you shouldn't experience too many problems. As a landlord, carrying out careful research is vital - from when you first select your property and location, to screening potential tenants. By carefully following all the checks on a prospective tenant, a landlord can significantly reduce the risk of problem tenants and future costly procedures.