Your A to Z of Buy to Let

20/06/2011

It may not look like it no, but here at Census Financial we’re finding that it’s an ideal time for some of our clients to get into property investment.  Here’s why: with first time buyers struggling to get into the market, more and more choosing to rent for longer.

  This means that demand for rental accommodation is at an all time high – pushing up rents and reducing void periods when properties produce no income.  What’s more, with property prices lower now than they have been for several years, an analysis of the expenses to income for a number of Census customers looks good.

However, we always tell our customers that buying a property investment is very different from buying a home. You need understand your market, find out what type of property people want to rent, then check out the finances to make sure the figures stack up.  Mortgage rates for buy-to-let are higher than for standard property because lenders view them as a higher risk.  Also, most lenders expect rental income to equal at least 125% of your monthly mortgage repayments.  This is to help cover maintenance, void periods etc.

We find that for buy-to-let, most lenders will offer mortgage loans worth up to 75 per cent of the property value, with some stretching to 80 per cent loan to value (LTV).  The usual fixed, variable and discount rates apply, but when choosing, remember that rental income may not rise substantially year-on-year, so make sure you can afford the repayments once any special rate or discount period is over. 

Remember too that while there are a number of expenses that can be offset against the rent you receive, rental income will be added to your other earnings and is taxable.  And when you sell, you will also be liable for capital gains tax.  It’s a good idea to join your local Landlords’ Association – you’ll get help with current legislation, advice on paperwork and tax issues and the chance to learn from the experiences of others.

Paul Dixon

Chartered Financial Planner