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What is Buy to Let…?
A buy to let property is a flat or house that has been bought with the intention of letting out to a tenant on a shorthold tenancy agreement. This will provide an income for the owner, who becomes a Landlord, from the rental that the tenant pays on a monthly basis.
The property may be purchased using a mortgage from a specialist lender who offers what is called a Buy to Let Mortgage. This will usually be an ‘interest only’ mortgage, which means the loan is not repaid, but purely serviced by monthly payments of the interest. The mortgage provider will consider the rental income of the property as a major factor when making a decision for the borrower, as the property must be seen to be able to pay for itself, what we refer to as positive cash-flow. This means that the rent from the property must be more than the interest payment on the mortgage and a lender will insist upon this by placing a ‘rental uplift’ figure on the application criteria which is typically 125%. This means that the rent must exceed the mortgage interest payment by 125%.
The owner of the property as a Landlord, is responsible for the safety of his tenants and varied legislation exists to ensure this takes place, the most important of which are the Gas and Electricity certificates. Legislation is also being considered to include the fitting of permanent or ‘hard wired’ smoke alarms and a minimum level of energy performance is also under serious review. Specialist insurance is also needed for this type of venture. As an investment, Buy to Let property offers two types of return.
Taken as a long term venture typically ten years, the property will show growth in value and while you get there, the rental income shows you a monthly profit. Refinancing along the way can also provide a useful source of tax free income, as long as rental levels support the extra borrowing, as rent rises tend to follow property value increases. Although this differential is changing as the demand for rented property steadily grows in the UK.
We are always happy to advise on how best to start investing in property and how to put together a stable and balanced portfolio. We don’t charge for advice or education and always welcome questions about any property related matters.
Whether you decide to source property on your own as a' hands on' operation, or rely on us to do it all for you, our help and assistance can always be counted on to make sure that the deal is right for you and it is going to be a worthwhile investment for your portfolio.
Our expert advice will always keep you on the right track.