Buy to Let
In many parts of the UK, the rental property market is thriving. Rents in many parts have been increasing year on year, making it more attractive to potentially become or to remain a landlord and own a rental property.
There is currently a strong demand for rental properties. With property prices increasing, it makes it more difficult for people to buy a home, and with many people struggling to save the deposit required to make their property purchase, renting for longer will be a requirement for many future homeowners. This in turn means a strong demand for rental properties.
There have been many changes in the buy to let rental market for mortgages, with lenders in many instances requiring larger deposits than before, and requiring to see a higher amount of rent being paid for the size of mortgage being requested.
Entry level deposit for a buy to let property is usually 25%, with the best deals available to borrowers who have a 40% deposit.
Many lenders will factor in your personal income and outgoings to ensure that the buy to let borrowing is sustainable, especially in the event that you are required to cover the mortgage and other outgoings, should the property be empty for any period of time.
Interest rates and product fees are generally higher with these types of mortgages compared to a residential mortgage and it is of great importance to understand your position with regards to all outgoings such as landlords insurance, annual property tests and many more. A good letting agency can help you with this and help ensure that everything is on order and compliant with your rental property.
Changes to property tax will mean that you will pay a higher rate of property tax when purchasing a property for investment, this varies throughout the UK.
Depending on your overall strategy for your rental properties, the mortgage can be set up on a repayment or an interest only basis. Our specialist adviser at West End Mortgages can talk through the pros and cons of each option to help you decide which is most suited to you.
We would also advise that you speak to an accountant or a tax adviser to check your position regarding what tax will be owed to help you ensure the property will be profitable for you, they can also assist in completing your annual tax return.
Limited Company buy to let
Over the last few years we have seen a rise in landlords purchasing buy to let properties through a limited company. Whether buying in your own name or through a limited company is the best option for you, we would advise you speak to an accountant or a tax adviser.
The tax paid on your rental property may be less if the property is owned by a limited company, but there are fewer lenders lending to limited companies and the interest rates and product fees can be higher, so it is good to understand your position with both options before you decide which route is best suited to your circumstances.
The FCA does not regulate some forms of buy to let mortgages.
A holiday let property is usually a long term investment, with the property being let throughout the year to tourists. Owning this type of property can potentially be very lucrative depending on the property and the location.
We have seen owners of holiday lets use local and national agents to attract clientele and to also fully manage the property on their behalf, dealing with the general upkeep and maintenance of the property.
These types of mortgages are proving popular in the UK following the rise of staycations and potentially more so in the future, meaning that a holiday let could be a good option as an investment property.
Most high street lenders do not offer these types of mortgages, partly due to the increased risk from having many guests staying at certain periods throughout the year, with some periods of the year potentially having no guests. This is opposed to signing a long term lease as you would on a buy to let property which provides the lender with more comfort knowing knowing that rent will be paid every month.
Holiday lets can experience low, mid and high seasons throughout the year. Due to this there is increased underwriting requirements to help the lender understand the area you are looking to operate in and how much income the property will potentially generate throughout the year.
Most holiday let lenders will require you to have a minimum income from employment or self- employment, to give them comfort that the mortgage and ongoing costs for the property remain affordable, should it be uninhabited at any point in the year.
We always advise to ensure that you have the correct policy in place to protect your holiday let from accidental damage, theft and property abuse.
We recommend that you engage with a qualified tax adviser or accountant who can help you keep your finances in order and help you ensure that you are claiming for any tax reliefs that you may be entitled to.
In summary, owning a rental property can be a good investment option in the right situation, but there is a lot to consider. Property price increases have been very strong over the last few years and purchasing a property can be a good long term investment.
Buying the right property in the right area and managed by a good letting agent can help make owning a rental property a success for you. Although like any investment future growth is not guaranteed, the value of the property could potentially increase or decrease over the period of time that you own it.
There are many good mortgage deals available at the moment, get in touch with us and we will advise you on the right deal for you.