The buy to let property market in the UK is booming, with about three million private landlords owning around nine million rental properties. Despite ongoing changes in legislation and regulation, the rental market is still one of the most attractive sectors to invest in.
What is a buy to let property in UK?
A buy to let property is a property which has been purchased with the specific intention of being rented out for profit. This can be a good way of making money on a long-term basis, but you need to make sure that you are getting a good return on investment. This can be a difficult task to do as there are a number of different factors to consider, including mortgages, other property outgoings and taxation.
Property Mortgage
A buy to let mortgage is the amount of money that you borrow on a buy to let property. The terms are different from one lender to the other. It can be either a repayment mortgage or interest only. The mortgage is typically for a set number of years and you pay off the loan in full, or re-mortgage the property at the end of the term.
Buy to let mortgages are available from a wide range of lenders, and there are deals on offer for first-time landlords, as well as experienced investors with portfolios. However, the lending criteria for a buy to let mortgage are a bit more strict than a standard residential mortgage, and you’ll often need a larger deposit to help you secure a buy to let mortgage.
How do I get a buy to let mortgage?
A buy to let mortgage is designed specifically for people who want to buy a residential property and rent it out. The first step is to talk with a mortgage broker or bank about what you want and how much you can afford to borrow. They’ll explain the different products and help you find the best deal for your situation.
Just like residential mortgages, buy to let mortgages aren’t typically interest-only. You will need to ensure that your rental income is enough to cover your mortgage repayments as well as any other outgoings like landlord’s insurance and management fees. They also tend to have higher set-up fees than standard mortgages and can be more expensive to run over the life of the loan – so it’s worth checking the true cost before you commit.
The majority of lenders will need you to meet their affordability tests, and they use what’s known as an interest cover ratio (ICR) to calculate whether you can afford your mortgage payments on a property with a rental yield.
What are the fees for a buy to let mortgage?
The fees for buy to let mortgages differ considerable. It mainly depends on three things: the broker, the lender and the credit rating of the purchaser.
A typical fee for a buy to let mortgage is 1% to 5% of the total amount you have borrowed, depending on the factors mentioned above. This is normally paid at the same time as the mortgage is being granted. Some lender will allow the fess to be added to the loan.
Are the mortgages cheaper than residential ones?
There are many different types of buy to let mortgages available, ranging from interest-only deals to longer-term fixes. Most BTL mortgages are significantly more expensive than standard residential mortgages, due to higher upfront costs and the fact that they are generally perceived by lenders as more risky.
Are there tax benefits?
In the UK, investing in property is a great way to build wealth and generate regular income. However, it is important to understand the risks of investing in a property and how to minimise them. There are a few things to consider when deciding whether or not to undertake this type of investment. This includes how much you rent you expect to get from the property, how easy it is to find tenants in the area and how much expenses you expect to incur.
The Buy to Let Market
There has always been a growing market for UK buy to let properties, and it continues to grow with rental demand increasing. However not all areas of the are experiencing this demand.
In the UK, the housing market is very strong, especially in the cities. There is a strong demand for properties to be let out and the prices are relatively low in some areas, which is good news for anyone looking to buy a property as an investment.
Investment properties are a great way to earn extra income, and there are also a few tax benefits for investing in residential properties in the UK. In particular, there can be Capital Gains Tax as well as inheritance tax benefits of investing in residential properties.
The 3% Stamp Duty Surcharge on Second Homes
In April 2016, the government introduced a 3% stamp duty surcharge on second homes and buy to let in the UK. This is on top of the normal stamp duty rates, and landlords must pay this for each property they buy.
The 3% stamp duty surcharge on second homes in the UK was put into place as part of the government’s plans to reduce the number of properties in England, Wales and Northern Ireland, with the intention of promoting a fairer system for home ownership.
Despite the recent taxation changes, a buy to let property in the UK is still an attractive investment option. There are a few things to keep in mind, though, and it is always worth speaking to an expert before you invest any money in a property.