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Buy-to-Let Mortgages
Our aim in this section is to not only provide you
with an insight as to how a Buy-to-Let Mortgage differs from an ordinary
Mortgage but also other aspects that you will need to be aware of when
considering the purchase of an investment property.
Please note that the Financial Services Authority
does not regulate most buy to let mortgages.
Whether you are a First Time Buyer or 2nd Property
Purchaser basically the initial processes are the same as shown in the
other sections of this website.
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The main difference is in calculating how much you
can borrow. If you are using the investment property as security against
the Mortgage the Lender will first need to establish the Rental Income
that is possible for such a property. In effect this Mortgage facility
has to be able to be self-financing i.e the rental income has to be
sufficient to cover the associated costs of the mortgage and other related
costs and insurances.
The calculation used in determining the amount you
can borrow is such that the ‘achievable rental income’ must
be at least 130% of the actual mortgage interest payments. This ‘achievable
rental income’ will be determined by the Valuer appointed by the
Lender.
When setting up a Buy-to-Let Mortgage you will be
expected to have available a much larger deposit (usually a minimum
of 25%, there are however lenders in the market who will consider lower
deposits than this although the interest rates are normally higher).
Other aspects you need to consider when considering
Investment Properties.
- Location – You need to be aware of the location
of the property, is it in an area where tenants (you have targeted)
want to live, if you decide to sell the property in the future is
the property in an area where you will be able to sell without problems
of attracting interest.
- Type of Tenant – You need to firstly decide
the type of tenant that you want to attract ie professional, student,
etc. The type of tenant you want will invariably determine the area
you decide to buy the property in, the type of property, size of the
property, number of bedrooms, local amenities, local transport etc.
- Achievable Rental Income – Again this will
largely be determined by the type of tenant, area, type and size of
the property. Our own valuer, Mark Routledge, will be happy to offer
assistance in giving you an indication of the potential rental income
that you might expect from your property.
- Management Services – If you decide that
you don’t wish to get involved with the vetting of suitable
tenants and the day-to-day maintenance problems and collection of
rents etc you will need to consider appointing someone to undertake
these duties on your behalf. Usually the cost of such is 50% of the
original rental payment + 10% of the rental payments thereafter.
- Maintenance Costs – As Landlord you will
be responsible for not only the day-to-day maintenance of the property,
re-decorating, specialist cleaning services and any structural problems
(unless malicious damage caused by a tenant) but also to ensure that
you have the appropriate certificates in relation to all gas appliances
etc.
- Re-Sale Value of the Property – Once again
location has much to do with the re-sale value of the property but
you should also be aware that if you sell a property with a sitting-tenant
this will automatically reduce the value of the property. This is
due to the fact that the new owner will not be able to enjoy the full
occupation of the property until such time as the tenant is removed.
Generally the property will be reduced in value by up to 35% if there
is a sitting-tenant.
- Rental Agreement – You will be responsible
in drawing up a suitable rental agreement, although this service will
be generally offered by your legal adviser at the time of you either
purchasing the property or when you have a suitable tenant for the
property.
- Taxation - Any rental income you receive will be
subject to income tax under Schedule A of the Income & Corporation
Taxes Act 1988. The amount of tax you pay will be at your highest
rate of tax. This tax is to be paid directly to the Inland Revenue
and this income you will need to declare on your tax return form.
Any costs or expenditure involved in the day-to-day operation of this
rental property is tax deductable i.e. mortgage payments, maintenance
costs, property management service costs, legal costs etc
Your property may be repossessed if you do not
keep up repayments on your mortgage.
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