More and more people are investing in property as a long-term opportunity to make profitable returns, and as a way of securing finance for their retirement.
Becoming a private landlord should not be seen as an easy way of making money, it can be riskier and more complicated than other forms of investment, and there is no guarantee that house prices will rise. That said, having a second property to let to tenants could reap considerable financial rewards over time.
When buying a second property to let, you will need to decide whether your primary objective is income or capital growth. In other words, are you looking to make a profit month on month or are you looking to make a profit through increased equity from the second property if it increases in value over time? The decision may affect the type of property you purchase, and the location.
Please note: Some buy to let mortgages are not regulated by the FCA.
There are 3 main differences in applying for a buy to let mortgages than applying for a residential mortgage:
Rent Potential - the decision as to whether or not a mortgage will be offered is usually based on the rent you will earn as well as your income. In some cases your income is not ever considered.
Interest Rate - buy to let mortgages have slightly higher interest rates.
Larger Deposit - typically a minimum of 20% or 25% of the property's value is required as a deposit.
When you manage a property there are many costs involved in addition to the monthly mortgage repayments. As a guide, you should be aiming to achieve a gross rent of about 135% of the rental property's interest only mortgage repayments in order to cover your costs should anything go wrong.
When choosing a property to let, it is wise to take advice from local letting agents to determine; what types of properties are in need and which parts of the town are best or most wanted. They can tell you if there is a University in the town, and if students are looking for somewhere to live.
Make no mistake, finding the most appropriate mortgage for a buy to let property can be something of a minefield mainly because of the increasingly stringent criteria set down by the lenders who are always unwilling to take unnecessary risks.
Please contact the office to discuss your circumstances and requirements, we source buy to let deals from the whole of the market.
JonSimon Financial Advice Ltd is an appointed representative of Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority.