All You Need To Know About Buy-to-let Mortgages.
Buy-to-Let mortgages have become an extremely popular investment vehicle in the last decade for people looking to create money
. But are their untold benefits and no drawbacks as is marketed by some estate agents? Below you will find the normal issues that you would run into when establishing your first buy-to-let mortgage, so without further ado, let's have a look...The Advantages - Let's start with the funding of the mortgage, the major benefit is, that different from a residential mortgage, a buy-to-let (BTL) mortgage is financed and agreed on the back of predicted rental income instead of what your personal income is at this time. The rent that you must charge (it will be insisted on by the lender) will be in the region of 125-150% of the original mortgage payment. For example, if the monthly mortgage payment is 600, your bare minimum rent must be 750 a month (125%) as you can see, if managed right, the best part of that amount can be monthly profit lining your pocket. To capitalise on rental profits, if you rent individual rooms out within the same property you can charge added rent, the student market is evidently the best market for this type of rental. It's not only the student market which BTL landlords like to target but as local councils shift from council housing to housing associations, the chances for landlords will multiply considerably, not to mention the fact that many hopeful first time buyers are forced to rent as they cannot meet the expense to get on the first rung of the property ladder give a profusion of options for a upcoming landlords. To help keep expenses low on a BTL mortgage, it is counselled (and most go for) an interest only mortgage as it keeps payments lower than the more traditional repayment mortgage model, while at the same time offering more flexibility in the payment plan. The concluding advantage is also one founded on flexibility, residential mortgages ban renting, if you are a first time buyer who fears meeting the repayments will not be doable, it might be worth asking a mortgage adviser about taking on a BTL as it might be inexpensive to rent the house you buy, use the profit to pay off more capital and continue to rent somewhere else.
The Disadvantages - There is always a downside to many of the advantages mentioned above; interest rates on BTL mortgages will be higher than on residential mortgages, not to point out that the same limitations remain also, there is no wiggle room to be had ready available. As for funding a BTL, the starting costs will be much larger also than for a beginner home, to start with there are some fees that will always be shared, Stamp Duty, solicitors' fees, conveyance fees et al. Where the costs start to swerve are with a BTL, you are looking at reconstruction costs and specialist insurance might also be essential. Some lenders might be firm that you hire a letting agent to run the property (as well as have assured short hold tenancies drawn up and ready to go); the fee a letting agent will extort will be around 15-20% of the monthly rent, badly draining any likely profit you might gain. These costs all depend on the conjecture you had enough money to get that far, the average BTL deposit rate is 25%, if you're lucky you might be talented enough to find a 20% deposit requirement.
The other thing to be ready for is the common time a property is empty for a year, which stands between 4-8 weeks a year, as the landlord you must have funds in place to contain the mortgage when this occurs, some type of emergency fund, which again will gobble up any profit you were eager to see from the rent. The last drawback to be remembered is the fact that operating a property and being a landlord can be a time consuming task, if you have, or are looking at eventually owning several BTL properties it can grow to be a full time job. So you have to be committed to the venture and be all set for the rough parts, there is no getting around the rough parts of letting out a property.
That pretty much rounds off the pros and cons of a buy-to-let mortgage, the ups and down you can anticipate as the usual buy-to-let landlord. As with all things, personal situations are all poles apart so unforeseen events can occur, a lot can also depend on the leaseholder you allow to live in the property, making the right choice on this front can make the world of difference, so pick wisely or at the very least allow the letting agent earn his pay check. It's is the letting agents job to find prospective tenants, this can contain a credit check, make sure the tenant can afford the rent and manage the drawing up of any contracts and holding the deposit. A letting agent can be pricey, but they can take a lot of hassle off your plate, it just depends if you think it's worth the extra cash or not.
by: Timothy Frodsham