Buy to Let Mortgages

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Mortgage Services & Advice for Home Movers

Is Buy to Let an alternative to a pension? Do you have a pension or is the pension you have unlikely to give the return you may need in your latter years? Do you want control of the income and something that will have a tangible value?

Deciding to invest in property or starting a business by becoming a landlord is not just about owning a property, it should be looked at as a business venture, with the objective to run efficiently, cost effectively and sustainably.

It is very important that you understand a) its investment potential b) the risks involved and c) what you can commit to the investment.

Consider the information below and then call our expert advisers on 01636 871 087.

What is a Buy to Let Mortgage?

Apart from the purpose of the mortgage, the main difference with a buy to let mortgage is that the lender takes into account the rent you will earn from the property as the primary source of income. Therefore, the risk to the lender becomes greater and they require bigger deposits, usually in the region of 15 to 40%.

Typically, lenders will want prospective rental income, verified by independent sources, to meet at least 125% of the monthly interest payment on the loan. This may be based on a set rate or the rate offered. Occasionally the lender may also take into account your personal income if there is a small shortfall on rental income.

Lenders have changed dramatically in the last 5 years. They used to be extremely flexible but are now far more cautious when offering Buy to Let Mortgages.

Each lender will look at you in different ways. You may be a first time Landlord or Property Investor and have never owned a property before, or you may be an experienced Property Investor.

Now more than ever it is important to understand that lenders are a law unto themselves, so having an adviser from WestBerks Properties working with you will ensure a much smoother transaction.

Our Service - finding the right Buy to Let Mortgage for you

Demand for the rental sector is likely to remain strong and potentially grow, offering an alternative to other forms of investments for savings or pension planning.

However, finding the best buy to let mortgage has become more complex and this is where our expert advisers will help find the best deal for you to maximise profits, and help plan your portfolio by understanding your strategy both now and in the future.

There is no guarantee that the property will be continuously let, for many reasons, so employing a good agent will be worth its weight in return.

At WestBerks Properties we are well placed to assist. We specialise in property management and investments and our Lettings division will work with the WestBerks adviser to ensure all areas have been covered now and for the future.

Contact us or call 01635 871 087 to find out more about Buy to Let Mortgages.

Ready to Invest? Consider the advice below

The first things to consider should be:

  • Do you have the spare time?
  • Are you ready to seek out facts and information?
  • Are you prepared to accept responsibility on issues of safety?
  • Are you willing to consult others for advice?
  • Are you prepared to accept an element of risk involved in making a business deal?

As a starting point, you must:

  • Understand an assessment of the profitability of your proposed property to let
  • Be aware of your legal obligations / safety issues
  • Be tax aware - carefully read our up to date tax guide for landlords which sets out the basics - this is a good starting point for you
  • Get advice, speak to our Mortgage Advisers to find the best buy to let mortgage deal available. We can also recommend accountants and solicitors depending on your individual requirements

Can you profit from a Buy to Let property?

To work out whether a property is likely to be a good investment, you need to work out all of the costs that you will incur and what the potential returns are.

Start by correctly breaking down the costs including the costs of buying the property, the costs of running the property and the costs of selling the property, Our expert advisers will help with this.

The costs of buying a buy to let property

There are many costs to consider when purchasing a buy to let property. Below is a list which will help you with your budgeting. The list is not exhaustive and is subject to a purchaser's position.

  • Broker fee
  • Lenders arrangement fee
  • Lenders booking fee
  • Valuation fee
  • Solicitors fee
  • Possible accountants fee
  • Property set up fees of various

In addition to these costs, you will also need a deposit which is typically 25% (as an average), of the property's value or purchase price. Our mortgage advisers will be able to advise you on this.

Stamp Duty - what's changing?

Stamp duty tax liability for anyone purchasing an additional property increased in April 2016.

  • Anyone who buys an additional residential property, including second homes and buy-to-lets, will have to pay an extra 3% in stamp duty from April 1st 2016.
     
  • The additional charge applies above the current stamp duty land tax rates. This means there will be 3% taxt (currently 0%) to pay on homes worth up to £125,000, 5% tax (instead of 2%) on homes that cost between £125,001 and £250,000 and 8% (currently 5%) on homes worth between £250,001 and £925,000.
     
  • Homes worth up to £1.5m will be subject to 13% stamp duty and those over this amount will incur a 15% charge.
     
  • In practice, this means that someone buying a £450,000 house will have to pay an extra £13,500 of tax.
     
  • Anyone buying a second home has 36 months to sell their original property. They can then get a refund on the extra tax.
     
  • In addition, anyone who sold their home before November 2015 but does not currently own their own home has until November 2018 to buy a new one without paying the extra tax.

The costs of running a buy to let property

These can vary due to many different factors. The highest cost of a buy to let investment is typically the mortgage, so it is extremely important to make sure that you keep this as low as possible throughout the process and into the future.

Buy to let Mortgages are generally set up on an ‘Interest Only’ basis so as to fit the general calculation of affordability to lend. However, they can be on a repayment basis or you may wish to overpay (see our information on ‘final options’).

Our mortgage advisers will help you find the best mortgage deal for your circumstances. You also need to consider letting agent set-up fees and ongoing management costs (if you decide to go down this route), the cost of finding a tenant, buildings insurance, gas and electricity safety certificate and landlord's insurance to cover things like bad tenants and damage as well as ongoing maintenance costs.

You should also take into account the likelihood of the property being empty for periods, during which time you will not be receiving rent.

Typical Example of a Buy to Let property worth £165,000

Capital costs:
- Mortgage of 75% of £165,000 = £123,750
- Stamp duty = £5,750
- Deposit = £41,250

The ongoing financial costs:
- Annual mortgage costs on an interest-only mortgage £123,750 @ 6% = £7,425
- Building and contents insurance = £338
- Gas and electrical safety certificate = £150
- Inventory = £85 to £300, depends on property size, type and furnished/unfurnished
- Landlords insurance = £300
- Ongoing lettings costs: WestBerks Agency fee Letting management costs = 6 - 9% of annual rental income depending on the level of service required

Final Options

The costs of selling a property

When it comes to selling your property (although a buy to let property should be a long term investment) there are costs to take into account such as a Energy Performance Certificate, estate agency fees, legal costs and any removal fees.

As a rule of thumb, selling a property costs approximately 2% of the sale price where this is less than £250,000 and 2.5% for any sale prices over this amount.

Calculating the investment returns

It is important that your property (or portfolio) is making a good return versus other types of investment. To compare how well your property is doing, you will need to calculate the return on your investment - both on an annual basis and over the time that you intend to hold the property.

The return is usually referred to as 'yield' and the way this is calculated can vary, but typically there are two methods that you need to consider; Annual gross yield and Return on investment.

Annual gross yield
Is an expression of the net income as a percentage of the capital investment. To calculate this, first work out your net rental income (the total rental income minus any letting costs). Then divide this figure by the amount of money you invested in the property including your deposit and any property purchase costs.

The average annual gross yield for a buy to let property ranges from 4-10% depending on the type of let and location.

Return on investment
Is an expression of the total return, including all income and capital growth minus costs, as a percentage of your capital investment.

Contact us or call 01635 871 087 to find out more about Buy to Let Mortgages.

 

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