Buy To Let
Buy to Let has very much been the favoured type of investment over the last few years, but is can be difficult for newcomers to get basic questions answered about how to get started, how you can buy your first property and what the rules and restrictions are.
The first thing to understand is that buy to let property can be purchased relatively simply and with little regard to your personal income, unlike a normal mortgage for your home. It is more concerned with the quality of the investment property itself and whether it is likely to provide enough income to pay the interest or repayments on the loan.
When you are looking at an investment property for the first time it is important to consider the level of rental income you expect to receive compared to the cost of the mortgage per month.
Banks normally need a minimum deposit of between15-25% on a buy to let property to be put down but if the interest cover requirements are not met then you will have to put in a bigger deposit to reduce the size of the mortgage and hence fit the interest cover. Nowadays developers are very keen for more sales and it is quite possible for us to negotiate to get a 5% deposit paid by the developer and even obtain a rent guarantee for a short period when offering them many sales as a result of this within a couple of weeks.
There are many mortgage products in the market today but some have large application fees that offset the apparently cheap interest rates and others have long tie-ins so be careful when choosing one.
With property prices as high as they are today you will find that most property, particularly new build, can only just cover the interest on the mortgage after other costs. For this reason most people buy using the cheapest interest only mortgages rather than repayment, at least in the early years.
When you have worked out your figures do not be surprised to see that it is quite hard to locate property that does make a cash profit on the rent coming in each month. After the boom of the last few years it is often only run down terraced houses and the like that bring in high yields (the percentage of the property price represented by the annual rental income) and those types of properties can bring their own problems in exchange for the higher income.
Hopefully this has given those of you who have not yet started with buy-to let an insight into how and why people are still buying, and putting their faith in bricks and mortar providing some of their income in retirement.
Some forms of Buy to Let mortgage are not regulated by the Financial Conduct Authority