Invest in Buy to Let Property

If you are looking for a way to make your money work harder for you then you have probably already considered the buy to let approach. Buying a property to let it out is a smart move which makes a lot of sense for the following reasons.

Look After the Present

There are types of investment opportunity around which promise you possible returns in the future but which could be difficult to get started with. For example, you probably don’t want to keep on putting a lot of money into something which might or might not pay out handsomely in the future. This is why it is better to choose a buy to let investment to look after you right now. If you make the right choice then you will find it is possible to pull in regular rental income which covers your mortgage payments and other expenses. What this means is that you aren’t exposed to the sort of investment which it is difficult to maintain in the short term

Take Care of the Future

Of course, most property investments really flourish over time. It is after 5, 10 or 15 years that you are most likely to see a big increase in the value of the house you bought. However, there are no hard and fast rules and you might be tempted to sell out for a profit before then. The most important point is that you always know that you have a solid investment which will look after you in the future, no matter whether you sell it in the medium term or the long term.  Life is certainly a lot easier when you know that you have a sensible investment to fall back on.

Keep the Risk Level Low

In the current economic climate most of us are happy to steer away from risky investments. This is a smart approach and by purchasing a property to let out you will feel that you are avoiding putting your money on the line in a high risk operation. This is because the property market is generally seen as being the place for a safe and steady investment. A look back at the historic growth rates for the UK housing market should give you a high degree of comfort. This is because we can see that it has enjoyed big increases in the last few decades and that the few periods of decreasing values have been more than made up for by the subsequent increases.

Investing in Buy to Let Properties

When you plan to buy a property to let out then this is an important point in your life. It is a fantastic type of investment and if you get it right then it can set up financially for later on in your life.

This means that you should take your time over the purchase and try to get every aspect of it right. The following are a few of the main things to watch out for before you make your purchase.

The Wrong Area

The area in which a property is located is one of the main factors which will determine how much its price rises by over the years. What you will want to find is an area which has a big future ahead of it. This could be because there are regeneration plans or new development plans on the horizon, for example. If the area is on the way down then you won’t have high hopes for the price of the house rising anytime soon.

The Lack of a Clear Potential Market

Ideally you will be able to clearly identify the potential market for both letting out and selling the property. A good example here would be where the property is near to a university and you feel sure that you could let it out to students easily enough. Equally, if it is near a school with a good reputation then you would expect families to be interested in it. If there is no potential market for your property then it is going to be extremely difficult for you to make a profit from it.

The Rental Income Being Substantially Less Than the Mortgage

You will want the rental income you pull in to be the same or more than the mortgage repayment figure you pay out each month. If this is the case then your investment will carry on paying for itself while the value of the property keeps on increasing. However, if you end up with a small rental income then it could mean that you need to pay out each month. There are two different steps you need to take to avoid this. The first one is to get an accurate mortgage quote and the second one is to check out the rental income which similar properties in the area generate. With these two pieces of information you can work out whether or not it is going to be a good deal for you.

Invest in a Buy to Let Property

The process of buying a property to let it out isn’t as complicated as you might think but it is important that take the right steps in the correct order, so let’s take a look at what those steps are.

Check How Much You Can Borrow

Before you get your heart set on a property you will want to see which ones are within your reach financially. For most of us this means taking a trip to the bank to see how much we can realistically borrow. You shouldn’t just trust the bank’s figures though and simply borrow as much as they let you. You should also work out how much you can sensibly afford to put into the property purchase.

Look at Properties

Once you have a purchase price in mind it is time to look at some properties. The first step you need to take here is to make the mental switch from thinking about buying a house to live in. You are now looking for an investment which will give you a great return in the future so you don’t want to choose purely because of the nice garden or because you feel good in the kitchen.

Choose the Right One

Now that you have looked at a few properties how will you know which is the right one? Well, you will hope to find one which has a big potential market for both letting and selling. You will also prefer to get a place which is good value and which has a strong possibility of increasing in value in the near future. If you find a property which meets these factors then you will feel comfortable about going ahead onto the next stage.

Sort Out the Paperwork

With the previous steps carried out you need to then go ahead and buy the property. This means pretty much the same as with any other type of house purchase, as you get the property put into your name and start up the mortgage.

Get a Tenant In

To make a buy to let investment work you need to find a tenant who will let it out for the right price. When you were weighing up different properties earlier on then you should have thought about this aspect as well. If you can find a tenant who stays there for a long time and who pays enough rent to cover the mortgage then you will be well on the way to having a successful buy to let investment.

Best Buy to Let Deals

One of the most vital factors in any buy to let purchase you make is the mortgage you use to buy it with. With all of the time you spend looking for the perfect property you might be tempted to rush through this part but here are a few reasons why you shouldn’t do so.

The Monthly Payment Should Stack Up

Probably the most important part of your mortgage is going to be the monthly repayment. This is because you will want it to match as closely as possible the amount you receive in rental income. If you get an exact match then you won’t need to pay anything from your own pocket each month. The length of time you hold on to the property will depend upon a number of factors but if you keep it for at least 5 years or so then even a small decrease in the monthly repayment amount will add up to a tidy saving.  If you are offered a deal with a special introductory rate then you should check carefully what the monthly payments will go up to after the deal period is up as you don’t want to get a nasty surprise after a few months.

Avoid Early Repayment Fees

As mentioned in the last point, there will no doubt be a few different factors which influence the timing of your sale of the property. This means that you will want as much flexibility as possible as regards the mortgage. As an example we could imagine that the value of the property goes through the roof quickly and you decide to cash in so that you can move the money into another investment. In this situation you would be disappointed to see an early repayment fee eat up some of your profit. If you can keep the flexibility of having no early repayment fee then you will feel comfortable about being able to sell up whenever the market conditions suit you best.

Pay a Deposit Which Suits You

The best way to invest is with other people’s money. In the case of buy to let properties this means putting down as small a deposit as possible. This might even mean that you have the option of buying two properties instead of just one, which will give you a far better chance of getting a fabulous profit from your investments. Some lenders might insist on a big deposit but if you shop around you could find a mortgage offer which lets you put in less of your own cash.

Once you have the idea of purchasing a buy to let property your next step is to find the right one. This is an exciting part of the project and one which could take up a bit of your time if you do it right. Thankfully you will find a few different ways of doing this these days to help you make the right decision.

Online Checking

The internet is a terrific way of finding out a lot of information in a short space of time. This is a particularly good way of narrowing down your focus when you aren’t at all clear on where you want to buy or how much you want to pay for the property. By checking online you can see a lot of different options all across the county and get a better idea of what you are going to end up buying. Of course, you will still want to see the properties and get a real feel for them before you make a final decision.

The Old Fashioned Way

Another option is to go round some of your local estate agent offices and see what good offers you can find this way. It is probably going to be a lot more time consuming than checking online and it could also get confusing as you try to remember all of the relevant details for the different properties you have looked at and talked about. However, if you already have a clear idea of what you are looking for and feel more comfortable with this more old fashioned approach then there is nothing to stop you.

Trust an Expert

What those first two points are missing is the touch of an expert who can guide you in the matter. If you look on your own for a property then you might find some decent ones but are they perfect for the buy to let market? Someone who has a lot of experience in this kind of purchase will know the kinds of things to look for and can show you which deals would suit you. Many people also find it hard to look upon this as purely a business purchase and end up letting their heart rule their head. This is where the presence of an expert can really help you to make a decision which is based upon cold, hard facts rather than the kind of gut feeling which leads most of us to buy the properties which we intend to live in.

There are types of buy to let mortgage out there for every situation and every type of investor. With recent trends indicating that buy to let lending is on the rise, the choice is likely to broaden further – good news in terms of finding competitive products, but potentially confusing for buy to let newbies. In this blog I’ll examine one of the main choices facing those taking out a buy to let mortgage – whether to opt for a fixed or tracker rate.

Fixed rate mortgages

Fixed rate mortgages offer just that – interest set at a fixed level for an initial period, usually for two to five years, though mortgages with longer periods up to and including the full term can be found.

Fixed rates afford stability and security in the form of knowing what your mortgage payment – typically a rental property’s biggest outgoing – will be. Also, if interest rates should rise, fixed rate mortgage holders do not pay more.

On the negative side, lenders charge steeper initial rates and often higher arrangement fees for fixed rate mortgages, and a fixed rate mortgage won’t enable you to capitalise upon falling interest rates.

Fixed rate mortgages benefit those without a lot of disposable monthly income or budget flexibility. Fixed rate mortgages are seen as lower risk than tracker mortgages, and are more attractive to people with shorter ‘investment horizons’ (that is to say ‘older investors’; those closer to retirement generally favour lower-risk investments).

After the expiry of the fixed rate period, your mortgage will switch to the lender’s ‘standard variable rate’ or an equivalent percentage. This could be more or less than you were initially paying, which is a gamble some might not be willing to make.

Because of this, a longer initial period offers the greatest security. However, this is at the expense of flexibility; you face being locked into an uncompetitive rate by the threat of an early repayment charge. Many investors will start to shop around for more competitive rates when their fixed rate period starts to draw to a close, and save money by regularly remortgaging their property.

Tracker mortgages

Tracker mortgages follow a certain percentage above or below a base rate – usually the BBR (Bank of England Base Rate) – and repayments fluctuate in line with changing interest rates.

The main benefit of tracker mortgages is that you benefit from any drop in the base rate. Additionally, tracker mortgages tend to have cheaper arrangement fees and among the lowest introductory rates available on the market.

Raises in the base rate, however, can massively increase the cost of a tracker mortgage. This makes tracker mortgages unpredictable, and long-term budgeting untenable for those without assets or income to hedge against repayment increases.

Rather, tracker mortgages are better options for experienced investors, or those with the capacity to deal with increased monthly outgoings; for instance, landlords who already have large, well-performing buy to let portfolios.

Remember that the introductory rate, much akin to the initial fixed period of a fixed rate loan, is not always whole-of-term. Regularly switching tracker mortgages can be a good way for a hands-on investor to save money by capitalising on the lowest introductory rates available.

One thing to remember

An important aspect of buy to let mortgages is that interest payments are tax-deductible. This means that you can take advantage of the security of a fixed rate loan whilst offsetting the potentially higher interest against the tax on your rental income, or you can reduce the impact that increases in interest rates will have on tracker mortgage repayments.

Be sure to talk to an experienced mortgage broker in order to be able to find the best buy to let mortgage rates.

The Difference Between Residential and Buy to Let Mortgages

If you are thinking of buying a property then you should be pretty clear about why you are planning to do it. After all, this is a huge decision you need to make and it has a lot of long term financial implications for you.

However, the question of arranging a mortgage can be rather more confusing, so it is worth looking at two of the main options and seeing what they actually mean and which one of them you are most interested in.

A Residential Mortgage

This is, simply put, when a bank or other financial organisation lends you the cash to buy a property to live in. This is expected to be your main property and it will probably have conditions on it which prohibit you from letting it out without advising the lender first of all. The rates for this type of mortgage are generally lower than for buy to let deals, as the lenders see those as being a bit riskier. However, the financial difference between the two types of mortgage isn’t as pronounced as it was even a few years ago. With this type of mortgage your main consideration will be getting a repayment amount you can afford. This is the type of home loan you probably have on your main property and you no doubt plan to keep on repaying it until you either pay it off completely or move home.

A Buy to Let Mortgage

This type of home loan is needed when you buy a property in order to let it out. This clearly makes a big difference to both you and the lender. For a start, this is likely to be an additional mortgage, over and above the one which you hold on your main property. It is also likely to be the case that you need the rental income to pay the monthly mortgage repayment, and by comparing the repayment figure to the anticipated rental income you can see whether or not it is financially viable. As for the length of time you keep it; this will come down to a number of factors. Maybe you will decide to cash in when the prices rises sufficiently or perhaps you will hold onto it for a lot longer if the rental income makes it worth your while. There are far more different lenders offering this sort of home loan than ever before, so you aren’t anywhere near restricted as you would have been just a few years back.

RICS Surveys Explained

You many never have heard of the RICS (Royal Institution of Chartered Surveyors) but if you are planning on buying a property then the work they do is going to be essential to making sure that you make the right decision. This is the body which oversees the surveys carried out on properties across the UK. When you are looking at a property then you will need to choose from one of these types of survey before proceeding.

Home Buyers Survey and Valuation

This is a 9 page report which covers the main parts of the house and details the condition they are in. It doesn’t include intrusive testing of items such as the drainage or wiring. It basically involves a qualified surveyor giving their professional opinion on the parts of the house which are visible. This will include estimated details of any work which is needing done on any problems. It will also include the surveyor’s opinion on what the property is worth on the open market and how much it would cost to rebuild in the event of total destruction. This is perfectly fine in a lot of cases, such as when the property is new and is of conventional build. However, if you are looking at an older property, one which has something unusual about it or one you plan to do a lot of work on then the next option on the list could be a better bet.

Structural Survey

This type of survey goes into a lot more detail and is more expensive to carry out too. It is an extremely thorough look at the condition of the house and the surveyor could spend several hours completing it. The main reason for choosing a structural survey is to find out absolutely everything about the property, so it is a good choice for older houses or where you have serious doubts about something. It doesn’t automatically include the current estimated valuation of the property but the surveyor will include this if asked to do so. As with the home buyers survey, you can expect a list of faults and an estimate of how much it will cost to repair them. With both of these types of surveys the value of the property will be a factor in determining the cost of the work done by the surveyor, while the structural survey may also take into account other factors such as the size and condition of the house.

How to Choose a Buy to Let Mortgage

Once you make the decision to invest in a property you have a lot of exciting and important issues to decide on. The mortgage you go with might not sound like the most interesting of these decisions but it is going to make a huge difference to whether or not you are successful with your buy to let venture.

Shop Around

It used to be that the buy to let mortgage market was pretty limited. This is now no longer the case and you should take advantage of this. There is no need to accept the very first offer you are given when there are so many other lenders out there who might potentially offer you a much better rate. You shouldn’t forget to see whether putting down a slightly bigger deposit or providing more details could help you reduce the rate or get a special deal.

Check Like for Like

If you have already taken out any sort of home loan in the past then you know that you are likely to get your mind boggled with promotional rates, special offers and all manner of other deals. It is easy to lose track of which quote is actually best for you in the long run. It is, therefore, a good idea to keep a list of the quotes on your PC as you get them. You can them try to strip out the fancy deals and compare like for like. For instance, if one quote has a snazzy low rate for the first 6 months but then gets a lot more expensive after that then you will want to see whether those 6 months will give you enough of a saving to make it worthwhile.

Check the Fees

Another issue not to forget is that mortgages often come with fairly hefty fees. Anything which takes away from your profits has got to be avoided at all costs and that most definitely includes fees.

See How Much You Can Borrow

One of the smartest ways of investing in property is by investing as little of your own money as possible. This might mean that you will need to ask for more money than some borrowers will be happy to give you. Clearly you don’t want to over stretch yourself financially but it could make sense to see whether you can find a lender willing to offer you a bit more. This could mean taking some non guaranteed income into account or relying more heavily on the rental income, so you need to think about it carefully before proceeding on this basis.

Questions You Should be Asking When You Look for a Buy to Let Mortgage

When you look at a property as an investment there are sure to be lots of questions you need answered before you are completely comfortable. It is essential that you do this before committing yourself, and when you go to the bank to sort out the mortgage is one of the most important times to do this.

What if I Cancel Early?

One of the big differences in approach between a buy to let purchase and conventional house purchase is that you will probably have one eye on the possibility of selling an investment property right from the start. This means that it is a smart move to ask at the start what would happen if you were to cancel the mortgage early. You certainly don’t want to find out that the selling price now suits you only to see that there would be a hefty cancellation charge for selling up early.

Are There Any Fees?

Mortgage fees are something you will definitely want to avoid on your buy to let mortgage. These will simply eat into your profits and leave you with a far less profitable deal than you had expected. Of course, you might not be able to avoid them completely but you should certainly try your hardest to get a home loan which includes little or no fees. It might even work out best for you to take on a slightly higher monthly repayment to avoid the fees. You will clearly need to do some analysis work on the quotes you are given before you can say which one is the best for your investment.

Will My Rate Vary?

One of the interesting things about buy to let investments is that you will be intending to pay the monthly mortgage repayment figure from the rental income you get in. What this means is that you will want to sure that the amount you collect each month is going to be enough to pay the bank. This should be easy enough in the first few months but what if you are on a promotional rate or a variable one? You could end up in quite a difficult situation if your mortgage repayment rate goes up while the rental income remains the same. The easy way round this is to ask the bank to give you some quotes for what the figure could be when the rate changes. There is a bit of guesswork involved in this but you will still feel happier than you would if you didn’t ask the question at all.