Ultimate Guide To Buy To Let: Part One
This is part one of a four-part series, forming the Ultimate Guide to Buy to Let.
Buying a property with the sole intention of letting it out is referred to as “Buy-To-Let”. It is becoming an increasingly popular investment for people in the UK; with the cost of houses continuing to rise, many people are priced out of the property market, meaning that more and more are looking to rent. This increased demand means that the Buy-To-Let market is booming and attracting many investors, from those looking to expand their property portfolios, to those looking for a retirement investment.
The most recent figures suggest there are currently approximately two million private landlords who own five million private properties in the UK. The market generates an estimated £15 billion in revenue each year, so it’s easy to see why so many people are looking for a piece of the action.
With this type of investment, you are looking for a property which gives you capital growth and also a good rental income along the way. It is easy to look at the success of the market and get carried away thinking it is easy money. You can’t just purchase any property and sit there expecting the money to come rolling in. There are many pitfalls and variables to consider if you want to be successful.
The best place to go for advice is a professional lettings agent. They can explain the importance to property location, quality of tenant, tax implications and external market factors and how these can affect your investment.
Aspen Woolf is the perfect company to help you through this decision and make sure that your investment works for you. They have the knowledge required of the market conditions and demand to guarantee high yields for new or experienced investors.
Whether you are a first time investor who is looking for advice, or someone who is looking to expand your portfolio, here is a detailed guide of the UK Buy To Let sector for 2018.
What Is A Buy To Let Mortgage?
Unless you have the capital to buy a property outright, you will need a Buy-To-Let mortgage to be able to acquire a property. This type of mortgage is different from a standard residential mortgage in a few ways. Due to the increased risk of involving a third party (namely the tenant) they are harder to obtain and usually have higher interest rates.
In order to obtain a Buy-To-Let Mortgage, you must meet a number of requirements. Usually you must be over the age of 25 and must have an income of around £25,000 or more. Most lenders will only consider an application if the rental income is in excess of 125% of the mortgage repayments. For example if your annual mortgage repayment is £20,000, you will need to have a rental income of at least £25,000. This is called Rent To Interest (RTI).
It is worth remembering that the larger the deposit you’re able to offer, the more favourable the interest rate you are likely to receive. You can expect to put down around 25% as a deposit, although to get the best rates most lenders will expect at least 40%.
There are a number of ways to obtain a Buy-To-Let mortgage, from high street lenders and banks, online providers. It is important to shop around to be able to take advantage of the best possible rates. There are many different types to consider including fixed, capped, variable and tracker-rate mortgages.
Loan Fees Explained: What And How Much?
Whenever you are applying for a buy-to-let mortgage, there will always be certain fees and charges that will be incurred. It is crucial that you shop around when looking for a mortgage as these charges may vary from lender to lender and need to be factored in when considering the best deal. A good interest rate can be negated by these fees if you’re not careful, so make sure you look at the whole picture before committing to a specific mortgage deal.
Here we look at the main charges that most mortgage applications will include (fees may vary).
Booking Fee – This is fee is non-refundable and is usually charged while your application is still pending. This charge allows the lender to reserve your funds and is not refunded should the application fall through. Typically a booking fee is around £100.
Arrangement Fee – The arrangement fee is required by the lender in order to set up the mortgage on your behalf. It is a more substantial fee than the booking fee but can be added to the mortgage total in some cases if preferred. The fee is required before the start of the contract however it is refundable should the application fall through for any reason. A typical arrangement fee will be from around £1,000 to £2,000.
Valuation Fee – Before any lender will agree to a mortgage they will want to carry out their own inspection and valuation of the property. In order to do this, they charge a Valuation Fee. This varies according to the size and age of the property from around £300 to over £1,000. If the property is over a certain age or size it may require a more in depth survey including looking at its structural integrity. This is referred to as a “Homebuyer’s Survey” and may incur extra expenses.
Legal Fee – Just like a residential mortgage, you will need to pay fees to ensure everything is in order from a legal standpoint. Charges that could be incurred here include stamp duty, land registry and search fees, and will vary from property to property.
The amounts quoted here are intended as a rough guide and will vary from lender to lender. Always ensure you seek proper advice from a qualified professional before committing to any type of deal. It is worth noting that some lenders also require an exit/closure fee of up to £300 once the mortgage is fully repaid. A good mortgage advisor is invaluable and will help you make sure you find the best deal.
Click here to read part two of the Ultimate Guide to Buy to Let, which discusses property types, as well as your responsibilities as a landlord.