Buy-to-Let Mortgages – What You Need to Know

Buy-to-Let mortgages have become an extremely popular investment vehicle in the last decade for people looking to create money. But are their untold benefits and no drawbacks as is promoted by some estate agents? Below you will find the frequent issues that you would run into when establishing your first buy-to-let mortgage, so without further ado, let’s have a look…

The Advantages – Let’s open with the funding of the mortgage, the major advantage is, that unlike a residential mortgage, a buy-to-let (BTL) mortgage is financed and approved on the back of future rental income instead of what your own income is at present. The rent that you must charge (it will be insisted on by the lender) will be in the area of 125-150% of the original mortgage payment. As an example, if the monthly mortgage payment is 600, your lowest rent must be 750 a month (125%) as you can see, if managed right, the majority of that amount can be monthly profit lining your pocket. To get the most out of rental profits, if you rent different rooms out within the same property you can charge more in rent, the student market is seemingly the best market for this type of rental. It’s not only the student market which BTL landlords like to pursue but as local councils alter from council housing to housing associations, the openings for landlords will multiply extensively, not to mention the fact that many wannabe first time buyers are forced to rent as they cannot meet the expense to get on the first rung of the property ladder give a profusion of options for a upcoming landlords. To help keep expenses low on a BTL mortgage, it is recommended (and most go for) an interest only mortgage as it keeps payments lower than the more customary repayment mortgage model, while at the same time offering more flexibility in the payment plan. The concluding advantage is also one established on flexibility, residential mortgages ban renting, if you are a first time buyer who fears meeting the repayments will not be achievable, it might be worth asking a mortgage consultant about taking on a BTL as it might be easier to rent the house you buy, use the profit to pay off more capital and continue to rent somewhere else.

The Disadvantages – There is always a flipside to many of the advantages talked about above; interest rates on BTL mortgages will be higher than on residential mortgages, not to point out that the same restrictions remain also, there is no flexibility to be had at hand. As for funding a BTL, the commencing costs will be much steeper also than for a first time buyer home, to start with there are some costs that will continuously be shared, Stamp Duty, solicitors’ fees, conveyance fees et al. Where the costs start to swerve are with a BTL, you are looking at redecorating costs and specialist insurance might also be required. Some lenders might be adamant that you hire a leasing agent to administer the property (as well as have assured short hold tenancies drawn up and ready to use); the bill a letting agent will obtain will be around 15-20% of the monthly rent, seriously sapping any potential profit you might secure. These costs all depend on the hypothesis you had enough money to get that far, the average BTL deposit rate is 25%, if you’re lucky you might be able to find a 20% deposit requirement.

The other thing to be equipped for is the average time a property is empty for a year, which stands between 4-8 weeks a year, as the landlord you must have funds in place to cover the mortgage when this occurs, some type of emergency fund, which again will use up any profit you were hopeful to see from the rent. The last negative to be noted is the fact that administering a property and being a landlord can be a time consuming task, if you have, or are looking at eventually owning numerous BTL properties it can turn into a full time job. So you have to be dedicated to the development and be geared up for the rough parts, there is no getting around the rough parts of letting out a property.

That pretty much rounds up the benefits and drawbacks of a buy-to-let mortgage, the ups and down you can anticipate as the usual buy-to-let landlord. As with all things, personal circumstances are all poles apart so unexpected events can crop up, a lot can also depend on the leaseholder you allow to live in the property, making the right choice on this front can make the world of difference, so pick wisely or at the very least allow the letting agent earn his salary. It’s is the letting agents job to find potential tenants, this can include a credit check, make sure the tenant can afford the rent and supervise the drawing up of any contracts and holding the deposit. A letting agent can be high-priced, but they can take a lot of hassle off your plate, it just depends if you think it’s worth the extra capital or not.

Wilbur O’Chaffin works at JustMortgageAdvice.com, who specialise in first time buyer mortgages and look to find the best mortgage rates for all their customers, first time buyers or not.

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