Buy-to-let mortgage guide Buy-to-let mortgages - get the best deal
Its's essential to do your research before taking out a buy-to-let mortgage. You need to be confident that your rental income will comfortably cover your mortgage and all your other expenses. Lenders will expect to see evidence that your expected rent will cover your mortgage payments by at least 125%.
A buy-to-let property should also be seen as a long-term investment. Over the long term, house prices are likely to increase but in the short term they could fall or stay the same. No one knows with any certainty what will happen to house prices in the future.
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Buy-to-let mortgages - landlord expenses
When calculating whether buy-to-let is right for you make sure you include all of the costs involved in letting out a property:
Maintenance costs: These will vary depending on the property but you should budget for costs of about £250 a year, if you have insurance.
Refurbishment costs: Every few years it is likely you will need to redecorate or refurbish parts of the property for example putting in new bathroom fixtures. You should budget for costs of around £2,000 over five years.
Letting Agents: If you decide to use a letting agent to find tenants should budget for a fee of around £250. If you would like the letting agent to fully manage the property for you i.e. collect rent, deal with tenants' problems and queries etc. you should budget for 10% -15% of your annual rent.
Landlord Insurance: You can get different levels of landlord insurance, for instance cover for the building and cover for your contents if the property is furnished. Costs for landlord insurance will vary depending on where you live, the property type and how comprehensive the cover is that you're looking for. Which? recommends that you take out some kind of landlord insurance and it is likely that your mortgage lender will expect you to.
Void periods: You should also allow for the property being empty for about 8% of the year between tenancies or during repairs.
It's sensible to have a contingency fund set aside for if any of your costs are greater than you expected. Also bear in mind that any mortgage rate increases could also eat into your rental income.
To get an idea of current buy-to-let mortgage rates, take a look at the buy-to-let mortgage tables on the Which? Mortgage Advisers website.
You’ll also have to pay income tax on any profit you make, and you may have to pay capital gains tax (CGT), if you decide to sell the property. Read our guide to tax on property and rental income for more information.
Buy-to-let mortgages - researching the property market
You can research the local letting market by going online and looking at how much rent properties in the area are advertised at.
Local letting agents will be able to give you an idea of what the local demand is and what types of tenant are looking to rent in your area.
The Which? mortgage comparison tables let you search all available deals from lenders large and small to choose the best deals based on quality of service as well as cost and benefits.
Which mortgage comparison table: Buy-to-let mortgages - all available deals compared
Letting your home without a buy-to-let mortgage
You may want to let your home if, for example, you’ll be working abroad or you can't sell it in the current market. If it's temporary, many mortgage lenders will let you keep your existing residential mortgage.
It's essential to tell your lender if you're going to let your home, as it may break the terms of your mortgage.
Lenders differ in their approaches to allowing you to let your home. Most will require you to apply for consent and some will charge for this. Most lenders won’t increase your interest rate.
Mortgage lenders may also apply other criteria, such as specifying the type of letting agreement you have with your tenants or the amount of rent you should get in relation to your mortgage payments.
You also need to tell your home insurance company or you may invalidate your insurance. You can get special home insurance for landlords, which can include cover for emergency repairs or rent guarantee cover if your tenants don’t pay.
Which Ltd is an Introducer Appointed Representative of Which? Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Your home may be repossessed if you do not keep up repayments on your mortgage.