Buy To Let
What is Buy To Let (BTL)
The phrase buy-to-let can refer either to the investment strategy of buying a residential property to be let for profit; or to a particular category of mortgage used to purchase a property for letting. Landlords traditionally have invested in residential property to be let for profit, but since the nineties there has been rapid growth in the property market leading to a surge in demand for rental property which is being exploited by many mortgage providers keen to encourage new amateur landlords.
Benefits and risk
The benefits for a buy-to-let landlord can include a stable income from rental receipts, as well as an accumulation of wealth if house prices increase over time. Rising house prices in the UK have made buy-to-let a popular way to invest. The main risk is that the property might not be occupied for all 365 days of the year, while the owner still has to pay a monthly mortgage payment. Also, buy-to-let landlords would suffer along with all property owners should prices fall.
Yields
Recent research by BDRC for Alliance & Leicester showed that 71% make a profit, but 29% break even or make a loss.
On average, English buy-to-let yields (the difference between the rent the landlord receives and the costs of ownership) were just under 5.5% in Q3 2007. This has fallen from over 7% in Q2 2002.
General Information
Buy-to-let mortgages have been on offer in the UK since the late nineties; they are specifically designed for investors to borrow money to purchase property in the private rented sector in order to let it out to tenants.
Lenders take different approaches. The amount of money investors can borrow is determined by the rental valuation of the property. Usually the annual rental income has to cover a certain percentage of the mortgage repayments, somewhere between 120% and 150%. This is to allow surplus rent to cover other costs such as property maintenance and void periods (periods when there are no tenants living in the property and therefore no rental income).
Typically the interest rates that are offered on BTL mortgages are fairly close to residential mortgage rates but will on average be higher and typically charge higher fees. This is due to the perception amongst banks and other lending institutions that BTL mortgages represent a greater risk than residential owner-occupier mortgages.
This type of investment has become very popular in the UK over the last five years or so, as house prices have dramatically increased. Another reason for their popularity is the tax advantages that are available to UK BTL investors. Rental income is considered in the same way as salary, and is therefore often taxed at 22% or even 40%. However, landlords can deduct costs from the taxable portion of their rental income, and these costs can include the interest portion of their BTL mortgage repayments as well as maintenance costs on the property. This tax set-up has made BTL investments more popular over the last few years.
The Financial Services Authority does not regulate most buy to let mortgages
At North Mortgages our Mortgage Experts will take care of everything on your behalf. Remember, we source mortgages from the whole of the market, so you know your getting the best deals available and all tailored to suit your personal circumstances.
Call NOW on: 08000 949 595 or contact us today to arrange a Call Back.
See also:
- Types of Mortgages
- Using a whole of market Broker in Manchester
- The Association of Residential Letting Agents (ARLA)
Information for landlords and tenants alike. ARLA are self regulating and do not fall under the FSA
http://www.arla.co.uk/
