Buy To Let Mortgages

Becoming a private landlord should not be seen as an easy way of making money; it can be riskier and more complicated and there is no guarantee that house prices will rise. That said, having a second property to let to tenants could reap considerable financial rewards over time.

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 your income. In some cases, your income is not ever considered.
• Interest Rate - buy to let mortgages have slightly higher interest rates.
• Larger Deposit - typically a minimum of 25% of the property's value is required as a deposit.

When buying a second 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 are you looking to make a profit through increased value over time? The decision may affect the type of property you purchase, and the location.

When you manage a property there are many costs involved in addition to the 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 your costs should anything go wrong.

Additional costs include

• Property upkeep - maintenance costs for the property.
• Letting agent's fees - letting agents charge around 10% of the monthly rent for finding and vetting tenants with an additional cost if you require a full management service.
• Ground rent / service charges - applicable to leasehold properties.
• Legal insurance - to cover costs from evicting tenants in the event of non-payment, very important, as this can be very expensive.
• Insurance - building insurance and contents insurance for the items provided as part of the rental agreement.
• Furnishings - the purchase of any furniture. If the property is to be let furnished, make sure you are covered for this by your home insurance.
• Gas / electrical appliances - cost of maintaining appliances and ensuring they comply with any regulations such as safety tests.
• Decorating costs - the property may require work ranging from painting, to a new bathroom suite before it is suitable for letting to tenants.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES