The whirling escalation of people jumping in to the buy to let arena as an option for short and long term gain, has definitely slowed and even begun to reverse of late. With new legislation being introduced all the time in favour of tenants, it might seem like this isn’t a great time to start investing in rental property but in reality, it could be a better time than you think. In fact, with any trends and their ensuing surges and declines, people often make the greatest gains when everyone else is either testing the water as the trend emerges or people are running for the hills as the trend declines. The old adage, who dares wins, springs to mind.
Added to this, new Prime Minister, Boris Johnson, is already being urged by colleagues and industry leaders to ‘reinvigorate the buy-to-let’ by introducing tax changes which could signal the start of a period of favour for private landlords. So, if you have done some research and decided that you can see the benefit of investing into the buy to let arena, we thought we would put together a quick cheat sheet of common questions on the subject.
How Does a Buy to Let Mortgage Work?
The most you can normally borrow on any buy to let mortgage is 75% loan to value. This means you need a minimum of a 25% deposit.
The interest rates are normally higher as are the fees, due to the risks to the lender
At going to press these were some of the advertised rates we found, obviously all are subject to change and personal criteria and are here as a reference only;
Post Office; 5 year fixed. 75% Loan to Value; 2.31 % until 2024 5.24 variable thereafter
Halifax: 5 year fixed. 75% Loan to value. 2.35% fixed until 2024. 5.09% thereafter
Lloyds: 5 year fixed. 60% Loan to value. 2.06% fixed until 2024. 5.09% thereafter
For a quick and handy comparison of some of the best buy to let mortgages on the market, click here
Criteria
Mortgage companies will look at the rental value of the property versus mortgage repayments. Using the Mortgage Works Rental Income Calculator gives you an idea of the figures.
A purchase price of £200,000 with 25% down, so £50,000, would require rental income to be above £860 per calendar month for their 2 year fixed tracker or £704 for the 5 year product. https://www.themortgageworks.co.uk/calculators/rental-income-required-calculator
Personal criteria they will take in to account; any personal debt, your credit score, if you are a home owner, your understanding of the risks, your age and your current earnings usually a minimum income of £25,000 per year is required.
The Money Advice Service goes in to finer detail on the criteria: https://www.moneyadviceservice.org.uk/en/articles/buy-to-let-mortgages
So, is it a good time to enter the private rental market?
The main factors to look in to before you leap in are; the new tax implications e.g the phasing out of deducting mortgage interest against tax , legal requirements on a landlord when renting a property, such as needing licenses for certain properties (HMO’s), new Smoke & Carbon alarm laws, deposit holding laws and so on, all of which make it a more complex environment but certainly not one that needs to be entirely avoided, just understood.
Doing your maths and working out the figures is imperative, but for the brave and the bold there is still money to be made as the demand remains higher than ever.
If you’re entering into the private rental sector for the first time, talk to us today for some free advice about how to protect your property, stay compliant and build your reputation as a good landlord through the use of professional inventory reports, regular property health checks and more.