What is Buy2Let?
There are many mortgage products for residential property investors. One of the
more popular schemes is 'Buy-to-Let' mortgage which is designed as an investment
vehicle. This is where you buy a property, so that it may be let to earn you
rental income. There is an alternative scheme called Let2Buy which is used where
you wish to rent out your previous homes in order to buy a new home somewhere
else. This scheme is suited to clients who have relocated on a temporary basis
which has become permanent. Rather than sell their former home they choose to
continue renting it but release the capital so that they can buy a new home.
How much will you be able to borrow?
Amounts can vary from £100,000 to
£1m per property. Lenders will usually advance a maximum of 85% of the property
price. The rental income must be at least 125% of the mortgage payment or a
multiple of your salary, say three times, plus half the rental income. Consult
your lender for details of their schemes.
What will be the Interest rates?
Most borrowers for Buy-to-Let prefer
Fixed or Capped rate mortgage so that they can plan their income and outgoings.
Initially charged commercial rates (or increased rates where borrowers sought
consent to let their own home) on loans taken out to buy property to let. Over
the years as more and more lenders have entered the Buy2Let market the interest
rates are only slightly higher than ordinary home loans. With interest rates
currently low the Buy2Let market is attracting more investors than ever before.
Are you buying more than one property?
Some lenders will only lend on one property; others limit you to 2, 5 or 10, and
some may have a limit on the overall amount you can borrow.
Can you claim Tax Relief?
Interest payments on your mortgage can be claimed against tax on rental income,
along with other expenses such as agents' fees and maintenance costs. Check with
the Inland Revenue or your financial advisor for details.
3 Easy Steps to Buy2Let:
1: Location, Location, Location
This is still the mantra for letting a property! We can advise you on the
current "hot" locations for the type of property you wish to purchase.
2: Financial advice
How much deposit do you have? Lenders will normally grant a loan to 80% of the
property value. As a general guide the rental income should cover at least 125%
of the monthly repayments.
3: Do your Sums
See what the rents are for the property you want to buy. Then see if it will
cover your repayments. Remember interest rates can go up and you will have to
have available funds for repairs, routine maintenance etc. If in doubt consult
your financial adviser or bank manager. If you are looking for a quick return
then Buy2Let is probably not for you.
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