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MORTGAGES FOR RENTAL PROPERTIES
Many people have made the decision to invest in rental properties, and this can be a good investment if approached correctly.
Becoming a private landlord should not be seen as an easy way of making money, however. It can be risky and complicated, and the obligations of a landlord can be very time consuming – more so than most forms of investment! In addition, 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. If you’re considering purchasing a buy to let property, the team at Options Mortgage Services can provide you with expert advice and recommendation on the most appropriate mortgage product to suit your circumstances. We can also offer advice on buildings insurance and life insurance should this be appropriate for you.
Most Buy-to-Let mortgages are not regulated by the Financial Conduct Authority.
THREE KEY DIFFERENCES OF BUY TO LET MORTGAGES
RENT POTENTIAL AND LENDING CRITERIA
The likely rental value of the property is a key factor that lenders consider before making an offer.
THE TYPICAL SIZE OF DEPOSIT REQUIRED
Deposits for buy to let mortgages are generally higher, typically 20%-25% of the property value.
THE TYPICAL RATE OF INTEREST CHARGED
Buy to let mortgages typically carry a slightly higher rate of interest than residential mortgages.
When buying a property as an investment, you will need to decide whether your primary objective is income or capital growth. In other words, are you looking to generate a monthly income or are you looking to make a profit through increased equity and rising property values over time? The decision may affect the type of property you purchase, and the location.
ADDITIONAL COSTS OF BUY TO LET MORTGAGES
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.
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Some of the additional costs you need to consider include:
UPKEEP
As a homeowner, you already know how much it can cost to keep a property in good condition. When it’s a rental property, these costs can quickly add up. Ensure that you budget for the ongoing cost of property upkeep.
AGENTS’ FEES
Letting agents charge around 10% of the monthly rent for finding and vetting tenants with an additional cost of around 5% if you require a full management service. You will need to make sure that the rent reflects this.
APPLIANCES
If the property is being let with gas or electrical appliances in place, you need to ensure they’re safe for your tenant, and that they comply with any regulations such as safety tests. You’ll also need to factor in maintenance.
GROUND RENT
If your buy to let property is a leasehold, then it may well come with a contractual obligation to pay ground rent or an ongoing service charge. It’s important to make sure you are aware of any relevant expenses of this nature.
LEGAL COVER
You’ll hopefully never have to deal with a nightmare tenant, but it can happen, and it can be very expensive! You’ll need to budget for legal cover to cover eviction costs in the event of a non-paying or problem tenant.
DECORATING
Before you let the property to a new tenant, you’ll ned to make sure that the interiors are in good condition. This means you may need to pay for anything from decorating supplies or services to a new bathroom suite.
INSURANCE
Buildings insurance will be necessary for a rental property, and in some cases – if you intend to let the property furnished – you may need to have contents insurance in place. This should be budgeted for.
FURNISHINGS
If you are planning on letting the property either partly or fully furnished, you’ll need to budget for furnishing costs. While this is a one-off cost (barring replacement over time), contents insurance will also be needed.
LOCATION
When choosing a property to let, it is wise to take advice from local letting agents. They can offer expert advice based on local knowledge, helping you to choose what type of property to purchase, and where.
GET IN TOUCH
Talk to the team at Options Mortgage Services in Reading for advice regarding buy to let mortgages. Our experience team can help you to make an informed decision.
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0118 954 1000
info@optionsmortgages.co.uk