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Buy To Let
Buying residential property as an investment has become increasingly popular in recent years, especially now that finding the finance to purchase property for this purpose is relatively easy, with many mortgage lenders offering products that are tailored specifically for buy-to-let customers.
When you apply for a Buy To Let mortgage there are three main factors to be considered:
1. Rental Income. The mortgage lender will want to know how much rent will be paid by the tenant, as well as your own income.
2. Interest Rate. Buy to let mortgages, like other commercial mortgages, usually have higher interest rates compared with domestic mortgages.
3. Deposit. Lenders will normally require you to contribute at least 20% of the purchase price or value of the property as a deposit.
Remember, the lender is only concerned about the security of their loan, not how much profit you hope to make. Many private landlords have made good businesses out of letting properties and also from capital appreciation, but there is no guarantee of success.
In addition to the mortgage repayments, there are other costs to be taken into account, such as letting agency fees for both finding a tenant and collecting rent, building & contents insurance, legal protection insurance, general maintenance, wear and tear on furniture and fittings, servicing and safety checks on appliances such as cookers and heaters. Last, but not least, the value of your own time spent dealing with queries and problems that arise from day to day.
Finding the right property to buy for letting is of course essential and advice from local letting agents can be helpful to determine the what type of properties are in demand and the best locations. Student rentals can also be attractive, if you know what you are doing, otherwise professional tenants are often the safer bet.
If you intend to use the services of a letting agent to find a tenant or manage the property for you, think about using an agent who is a member of a professional association such as the Association of Residential Letting Agents (ARLA), who operate a bonding scheme to protect rent and tenants' deposits.
Remember that if you let out all or part of a property and receive rent, this is treated for tax purposes as if you are running a rental business. It doesn't matter if you let just one small flat or many different properties, for tax purposes they will all be treated as a single business. Rent is regarded as part of your total UK income as a taxpayer. Further information is available from the HM Revenue & Customs website.
It can be a good idea to consult an accountant about the tax implications of owning and running a rental business, to ensure that the business is established on the right basis to optimise your tax position. You should be able to offset most of the expenses such as maintenance costs, letting agency fees, mortgage interest and insurance against the rental income received, to calculate your profits before tax.
For help with buy to let mortgages click here for independent buy-to-let mortgage advice and quotation.
NOTICE: A mortgage is a loan that is secured on the property, which could be taken away by the lender and sold if you do not keep up the repayments on the mortgage or any other debt secured on it - if you are in any doubt, seek professional advice. These notes are offered as a general guide only and do not constitute mortgage or legal advice.
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