Buy to let mortgage guide Buy to let mortgages - get the best deal
Its's essential to do your research before going ahead with 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%.
It should also be seen as a long term investment. Over the past 20 years house prices have grown significantly but since the credit crunch they have fallen and are yet to recover. And there are no guarantees about what will happen to house prices in the future.
Buy to 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% 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.
Seek buy to let mortgage advice
We believe you should seek independent mortgage advice before taking out a buy-to-let mortgage. The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at every mortgage from every available lender. You can also find an independent mortgage adviser using Unbiased.co.uk.
To find out what your repayments would be at different interest rates, or to see how much you could borrow and work out how much you can afford to spend on a mortgage, take a look at the mortgage calculators offered by Which? Mortgage Advisers.
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.