Getting a buy to let mortgage in the UK

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Buy to Let?

Many people are tempted by the prospect of buying to let, but you need to make sure you do things correctly. Read more and find out how not to mess up your first foray into property ownership and rental.

Recent years have seen ‘buy to let surge’ in popularity once again. It’s an easy way to make money that in theory doesn’t  require much work so is bound to be popular!  Compared with other investments a buy to let mortgage can look like a safe bet.

Mortgage rates are at record low prices so the time has never been better to buy a property for rental of course with the hope that this property might also increase in value over the years.

Boom and Bust

Beware of low mortgage rates however as one day quite soon they may change. Also new tax laws are coming into place in 2016 which landlords need to be aware of including extra stamp duty, so the whole process is being made less profitable by the government.

During the last property boom in 2007  many investors lost out when mortgage rates rose. Some breathed a sigh of relief when the base rate was cut to half a percent. Rates have stayed at approximately the same place since 2008 but they will increase again – keep this in mind when calculating your margins.

Make sure you research the market properly. Lately a high rate savings account has been just as good as a lot of investment opportunities though rates are a bit slower and investing in buying to let does tie up your capital. If you know somebody locally who has already invested in a buy to let mortgage and made money speak to them about their experiences. They probably have some interesting information for you. Being a landlord can take skill in some areas.

Have a look around the area and see what other people are charging for rent. Most buy to let mortgage lenders require payments to cover at least 125% of the mortgage and in some cases even more. There will also be arrangement fees to consider. When working out your potential profits don’t forget to include maintenance and other fees. Also consider what may happen if your tenant leaves and you are left without somebody paying the rent for a couple of months.

Banks?

Walking into your local bank and asking for a mortgage is not going to get you the best deal. This may sound obvious but actually banks want to make profit and are not there to give you the best possible deal for your mortgage. It is a good idea to speak to an independent broker if you are looking specifically for a buy to let mortgage. Also do your research. Check on Google. Read reviews.

Generally speaking buy to let mortgages these days require a larger deposit than they used to. Something else to bear in mind.

Also consider what sort of people will be renting your property. If they are students they may be less concerned about decoration. If they are professionals then they will expect more than just the basics.  The good thing about renting property to students is that they normally come back for a few years and are generally very reliable when it comes to paying the rent.

You can get insurance that protects you against tenants who failed to pay the rent this can be as little as £50 a month so is worth investigating.

Don’t let ambition ruin your buy to let plans. Aiming too high could mean that your property ownership dream is not realised. Most mortgages for buy to let operate on an interest only basis and this means the amount borrowed it is never paid off – allthough payments can be offset against tax.

Consider other areas if you cannot find a suitable property in your vicinity. Looking further north can bring down the price and increase the available amount of potential properties. It is useful to be close to your property not totally essential.  Properties that require a little bit of improvement can be a great investment, especially if you are able to do a bit of the work yourself.

When it comes to buying your property you have the same advantage as a first time buyer i.e. you are not in a chain so you can haggle on price. This can be a real asset when negotiating as many buyers will be waiting for their house to be sold before they can do make a move. Take advantage of this!

Also, do consider the disadvantages of being a landlord. Are you the sort of person who can be firm with tenants when they don’t pay the rent?

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