As a buy to let first time buyer, you may be unfamiliar with many aspects of the process, so enlisting the assistance of a trusted mortgage broker can be a sensible step that not only reduces stress, but can save you considerable sums too.
Details of the dealAny buy to let first time buyer needs to understand that a mortgage for a buy to let property is significantly different to the mortgage product you would obtain for the purchase of a private residence. Buy to let mortgages are specifically tailored to buying rental property.
Typically, a buy to let mortgage will require a more substantial deposit and the interest rates may be higher as well. Organising mortgages of this type can be more complex, so the fees for doing so may also be a little higher than, for example, on a first time buyer’s residential mortgage. The type and value of the rental property you are looking at and how much rent it will generate will be the principal determinants as to how much you can borrow.
Rental incomeThink realistically about how much you can spend on your rental property. Look at property listings for properties of a similar type and see what rental incomes they are generating. It is important to do some research and base your figures on what the market will yield. There is no point in simply hoping that the two bedroom flat you have selected will generate a thousand pounds a week when flats of a similar type in the area are rented out for a third of that amount.
It's important to bear in mind that not all of the rental income is profit. Properties require maintenance and insurance and there needs to be enough left over to cover these expenses.
If your buy to let property is leasehold, then there may be annual service charges will also need to be funded from the rent. Service charges may cover the building insurance with a flat, but you may still need contents insurance.
Covering all the extrasIn looking at properties, assess their condition carefully because major repairs, such as replacing a boiler, can put quite a dent in your rental income. If something goes wrong with the electrical system or the plumbing, then this will need to be covered as well, in addition to the insurance required for protecting against damage by flooding or fire.
When you rent a property there are certain legal obligations as well, such as making sure that the premises are in good repair, so money may be needed to fix things before the property can be rented out. If an estate agent or letting agent is managing the property for you, then they will take a percentage of the rental income for this and the associated charges could be in excess of 10 percent of the rent.
It may pay to shop around and talk to a few agents before signing up with one. You also need to be aware that it may not be possible for a rental property to be occupied and generating income 52 weeks a year. When tenants leave, it may take several weeks to find new tenants, even longer if repairs or refurbishments are necessary.
Ideally, the rent each month should give you enough to cover the mortgage repayments, while putting aside some income to cover annual expenses such as insurance and service charges, with a little extra to cover emergencies. Some wear and tear is also to be expected on a property, no matter how careful the tenants may be. Walls may need to be repainted or carpet replaced. Appliances may wear out or need updating as well.
If you're worried about the costs associated with the event of a plumbing or electrical disaster, there are other types of insurance policies available. Your time is also valuable, so setting up the rental in a way that runs as smoothly as possible is important, especially if you travel a lot or do not live near the rental property.
Legal obligationsOther expenses will include a gas efficiency certificate and an annual inspection by a Gas Safe engineer to make sure that any gas appliances such as hobs and boilers are in good repair. A carbon monoxide alarm will be needed for the protection of your tenants, together with appropriate smoke alarms.
The regulations concerning landlords and tenants keep changing, so it is essential that you get a firm grasp on what these entail before leaping into the rental market. Fire safety is extremely important, and you will need to be up to date as to what the law demands here, in terms of fire safety doors, signage and alarms, the requirements being determined by the type of property.
Regular electrical inspections by professionals are also mandatory on certain property types, for example, a house in multiple occupation (HMO) such as a student let.
It is vital that you do plenty of research to plan for the above expenses which could otherwise place a strain on your finances. In purchasing a buy to let property, there are also stamp duty charges which need to be covered too. One of our experienced brokers can set out everything you need to know and explain every step.
By using a mortgage adviser with in-depth knowledge of the buy to let market, it should be easier to avoid the most common and costly mistakes, reduce any associated risks and derive maximum income and benefits from this important investment.
Our expert team are also able to identify the most appropriate mortgage products for the property in question and your circumstances. We can help you find the best deals, avoid the most common pitfalls and ensure that your first experience in the rewarding buy to let field is a positive and enriching one.