BTL Mortgages Explained
BTL Mortgage Advice BTL Mortgage
Btl mortgage ( buy to let ) are designed for those wanting a mortgage for
the purpose of letting the property out to tenants.
These BTL mortgages have become increasingly popular over the past few years, driven
by increasing house prices, a strong demand for rental properties and a drop
in the interest rates available to private landlords. A wide range of btl mortgage products are now available, including fixed rate, discount, tracker and
variable rates.
Btl mortgage products differ to residential mortgages in three main ways:
- 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 considered.
- Interest rate - btl mortgage products have higher interest rates.
- Larger deposit - typically a minimum of 20% or 25% of the property's value is required as a deposit for BTL mortgages.
BTL mortgages Pros and Cons
Becoming a private landlord should not be seen as an easy way of making money.
It is riskier, more complicated and more time consuming than most other forms
of investment and there is no guarantee that house prices will continue to
rise. That said, letting a second property to tenants can reap considerable
financial rewards over time.
When buying a property on a BTL Mortgage 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 in the property as it increases in value over time. The decision may
affect the type of property you purchase, the location and the type of btl mortgage you take. For example, a
prime city centre location may be more suited to high growth.
Interest Only or Repayment BTL mortgage?
Repayment mortgages are the most popular form of mortgage, it is worth remembering that when budgeting your monthly payments on a repayment mortgage that the term taken at the outset can be changed in the future. Many customers are now taking repayments mortgages over 30 of even 35 years to keep their monthly repayments low in the initial years. Interest only BTL mortgage are however becoming increasingly popular for both first time landlords and experienced BTL investors. When the BTL property is not let they benefit from keeping the monthly mortgage costs to a minimum. Many BTL mortgage lenders are happy to offer interest only mortgages with no investment vehicle required.
Buy to Let Budgeting
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 130% of the rental property's mortgage repayments (interest only) in order to cover your costs.130% is also is also a good guide as to the required gross rental that a btl lender would be looking for when agreeing a btl mortgage. These calculations vary from lender to lender, for more information please feel free to speak to our expert btl mortgage specialists for free btl mortgage advice.
The additional costs for BTL include:
- Letting agency fees - letting agents charge around 10% of the monthly rent for finding and vetting tenants and an additional cost of around 5% if you require a full management service.
- Ground rent / service charges - applicable to leasehold properties.
- Property's upkeep - maintenance costs for the property.
- Gas/electrical appliances - cost of maintaining appliances and ensuring they comply with any regulations.
- Insurance - building insurance and content insurance for those items provided as part of the rental agreement.
- Furnishing - the purchase of any furniture if the property is to be let furnished.
- Legal insurance - to cover the costs of evicting tenants in the event of non payment.
- Decorating costs - the property may require work ranging from painting to a new bathroom suit before it is suitable to be let to tenants.
BTL Property Tips
When choosing a property to let it is wise to take advice from local letting
agents to determine what type of properties are in demand and in which areas.
The Association of Residential Letting Agents (ARLA) state that a property
'needs to be in the right area, close to transport and other facilities, and
in good condition'.
BTL Letting Agents
When choosing a letting agent to act on your behalf it is sensible to choose
one that is a member of the ARLA. The reason is because members of the ARLA
must join in a bonding scheme to protect rent and tenant's deposits. The bond
provides total compensation of up to £2 million a year.
Buy to Let Taxation
There are a number of tax issues that need to be explored in order to maximise
your tax position, such as being able to offset your maintenance costs, letting
agent fees as well as any interest paid on a buy to let mortgage against your
tax.
You can visit the ARLA website at www.arla.co.uk for further information
on becoming a private landlord.
These types of mortgages may not be regulated by the Financial Services Authority.
Do you want fee free BTL mortgage advice?
For professional btl mortgage or remortgage advice please complete the mortgage enquiry form and a mortgage adviser will contact you to discuss your BTL Mortgage requirements.
You may also be interested in:
- Mortgage Protection Insurance
- Best Buy To Let Mortgage
- Online House Price Comparison
- How Much Can I Borrow
- UK Life Insurance Quote
REPAYMENTS ON YOUR MORTGAGE
Think carefully before securing other debts against your home, your home may be repossessed if you do not keep up repayments on your mortgage.
Go Direct.co.uk is a trading style for website purposes of Go Direct UK Ltd. Go Financial Services is a trading style of Go Direct UK Ltd which is an appointed representative of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Services Authority Registered in England & Wales Company 5703224.
We normally do not charge a fee for mortgage advice, however a fee paying option is available. Our typical fee would be £500
