Buy-to-let mortgages may be tailor-made for landlords, but that
doesn’t mean you should enter into one without some careful
consideration and a great deal of research. There are several factors
you’ll need to think about in order to get the best deal and make the
most of your investment.
In the current climate, making a profit
on property is not as easy as it once was. With this in mind, getting a
buy-to-let mortgage on a home should always be viewed as a long-term
project.
Having said that, the buy-to-let market remains extremely
popular and the prospect of buoyant rental yields continues to attract
new investors. According to figures published by the Council of Mortgage
Lenders (CML) in 2012, the total number of buy-to-let loans in the UK
now stands at over 1.4 million, with a combined value of ã159.4 billion.
It’s
worth remembering that people usually invest in buy-to-let property
with one of two strategies in mind. Some investors target high rental
returns, while others aim for capital growth.
It is generally true
that properties which increase more in value provide lower rental
returns, while homes that offer higher rental yields are less likely to
achieve long-term capital growth.
Here are a few key
considerations for first-time landlords and those looking to extend
their rental portfolio with a new buy-to-let mortgage.
Get to know the market
Before
you even begin to compare mortgages, you’ll need to find out all there
is to know about the local lettings market. Think about supply and
demand, look at other houses on the internet and talk to local letting
agents to find out how much other landlords are charging to rent
properties in your chosen area.
Even if you’ve already decided on a
property, you’ll need to know how to competitively price your rent so
that tenants in the area are likely to accept it.
Get your calculator out
You’ll
need to do some sums before you go ahead with any buy-to-let mortgage
application. You have to be sure of two things: firstly, that you can
afford the initial investment, and secondly, that the buy-to-let is
likely to be profitable in the long-term.
The average maximum
loan-to-value available on buy-to-let mortgages is currently 75 per
cent, according to the CML. This means you’ll need a sizeable deposit,
while the rates you’re offered are likely to be considerably higher than
those on a residential mortgage. You could also face a hefty
arrangement fee to get a mortgage with the most attractive rates.
When
evaluating the feasibility of specific deals, consider how much your
mortgage costs are likely to increase if rates go up. Remember that
rising interest rates could potentially cancel out any profits you make.
Additional costs
To
find the right buy-to-let mortgage for your needs, you’ll need to
consider the other expenses that come along with being a landlord. It’s
advisable to set aside money for maintenance and unexpected repairs,
while you’ll also need to arrange buildings insurance (for more
information,click here).
Also,
remember that you’re likely to experience rental voids when the
property is sitting empty and no money is coming in from tenants.
According to advice from the National Landlords Association, you should
allow for the property being vacant seven per cent of the time.
