Considering a buy to let? A deposit for a buy to let property can range between 20% and 40%
If you are considering becoming a private landlord you need to appreciate that it’s not necessarily the easiest route to making money. There are risks involved and it can also be both time consuming and complicated when compared to many other ways of investing your money.
Equally, there is no guarantee that house prices will not fall. However, owning a second property that is rented out to tenants including students in university towns can reap considerable financial rewards in both income and capital growth over the medium to longer term.
Buy to let mortgages are a specialist product and as with all forms of secured borrowing or investment you should always seek professional and qualified financial advice to help you make the right decisions and walk you through the processes involved.
Buy to let mortgages are fundamentally different in three ways when compared to owner occupied mortgages or remortgages:
Potential Rental Income – 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.
Interest Rate – BTL mortgages can have slightly higher interest rates than owner occupied properties because they are regarded as more risky from a lenders point of view.
Deposit Requirement – typically a minimum of 20% to 25% of the property’s value is required as a deposit.
When considering buying a second property to let, you need to decide if your primary objective is medium to long term capital growth or income or both? Basically, are you looking to make a profit on a month to month basis or are you looking to make a profit through the increased equity value from the property over time? Your decision could also be affected by the location and the type of property you are considering buying.
Also be aware that managing a property involves costs that are in addition to the monthly mortgage repayments. For example; there are potentially structural maintenance costs as well as fixtures and fittings, replacement of furnishings and white good as well as insurances and tenancy agreement and letting costs.
As a guide, you may need to be aiming to achieve a gross rent of about 135% of the rental property’s interest only mortgage repayments to cover these costs. As mentioned above, always seek professional financial advice before entering into any buy to let arrangement.
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