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Buy to Let

Becoming a private landlord can be a sound investment and a way to secure your financial future.

When buying a property to let, 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 looking to make a profit through increased equity if the property increases in value over time? This decision will affect the type of property you purchase, and the location.

When choosing a property, take advice from local letting agents.  They can tell you what the local market demands are in regards to property types and key locations.

 

There are 3 main differences in buy to let mortgages:

  • 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, in some circumstances, your income
  • Interest Rate - buy to let mortgages have slightly higher interest rates

  • Larger Deposit - typically a minimum of 20%-25% of the property's value is required as a deposit

When you manage a property there are other costs to consider in addition to your 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 these costs.

 

Additional costs can include:

  • Refurbishment costs - the property may require work ranging from painting, to a new bathroom before it is suitable for letting
  • Property upkeep/maintenance
  • Ground rent/service charges (applicable to leasehold properties)
  • Letting agent's fees - 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
  • Legal insurance - to cover costs from evicting tenants in the event of non-payment, very important, as this can be very expensive

  • Insurance - building and contents insurance for the items provided as part of the rental agreement

  • Purchase of any furniture - If the property is to be let furnished, make sure this is covered by your home insurance
  • Gas/electrical appliances - cost of maintaining appliances and ensuring they comply with any regulations

Note: Becoming a private landlord can be riskier and more complicated than other forms of investment and there is no guarantee that house prices will rise.

 

Your home may be repossessed if you do not keep up repayments on your mortgage(s).

The Financial Conduct Authority does not regulate some forms of buy to let