Buy to Let questions and answers

No rental income assessment to 80%LTV
Unusual properties
To 80% LTV
Flats over shops or restaurants
Ex local authority property
Fixed rates
Portfolio landlord mortgages
Student lets
HMO lenders available

Why invest in property?

While house prices are low it is an excellent time to invest in property. For some, the key reason for buying to let is to benefit from the increase in value over time, sometimes considering it as a retirement fund. But there are also those who are looking at the cashflow potential from property. Over time the increasing rents can generate a substantial income stream which inturn can be used to pay down the mortgage or allow further investment.

There may also be other motivations, such as buying a property for your child to live in while they are at university. In any case you will need to make sure your expectations are realistic and that you have a good understanding of how changes in the market could affect your investment.

What returns can you expect?

Whatever the reasons for buying to let, you'll want to make sure your investment is sound. Therefore, you'll need to know what factors might have a positive or negative effect on your rental income and, in the long term, the value of the property.

There is no guarantee to the level of returns that you can expect. The type of property, location and quality of decoration and facilities can all have an influence on the level of rent achievable.

Are there any risks?

Yes, the property market is like any other market and prices can fall as well as rise. Because of this buying to let should be seen as a long term investment. In addition your income may be affected greatly if there are many periods when your property remains empty (called void periods).

Reasons can include where the rent is set too high, the property is unappealing, or there is simply a lack of demand for rented property of that type in that area.

What are the tax implications?

It is important that you receive tax advice if you are thinking of buying to let. You will be charged tax against the net income you receive from rents. However, deductions may be claimed for the costs of any maintenance, insurance, mortgage interest, agent's commission and other reasonable management expenses (but not improvements).

A wear and tear allowance of 10% of the rents received may also be deductible if the property is furnished.

Because the property isn't your primary residence you could be charged capital gains tax when you sell it, if it has increased in value.

You may receive some gains relief, which will be determined by the length of time you have owned the property.

Tax assumptions are based on our understanding of current legislation that may change and do not constitute advice. We always recommend getting advice from an accountant who understands property issues. You can also get very useful tax information from organizations such as the National Federation of Residential Landlords who for a very reasonable annual fee offer a range of very useful services and documents. Tax relief will depend on your individual circumstances.

Can a letting agency manage your property?

Although it is possible to manage the property yourself, you may prefer to have a professional letting agency manage it for you.

The letting agent you choose should be one that is a member of the Association of Residential Letting Agents (ARLA).

You will pay about 10% to 15% of your gross rental income to a letting agent to manage your property depending partly on the level of service needed..

In return you can expect to find an experienced agent who will know the local market and will help you to find suitable tenants, draw up tenancy agreements, collect rent and notify your lender when your tenants change.

You can obtain details of letting agents from the Association of Residential Letting Agents (ARLA) on 0845 345 5752.

What is the maximum number of properties?

Some lenders impose a limit on the number of properties, say five or ten. Others have no limit, as long as the total loan does not exceed the maximum. We can help with adjusting and balancing portfolios of property.

How much can you borrow?

This will vary by lender. Some lenders will allow you to borrow up to 80% of the property value, others will allow only 75% or lower.

With a normal mortgage the maximum amount you can borrow is based on your income. With a Buy to Let mortgage the amount you can borrow is calculated differently.

Instead of your income it is based upon the estimated rental income. Different lenders offer products that allow rental cover to be between 100% and 125% depending on the product chosen and your circumstances. There are also lenders who will not assess rental income but base their decision on affordability from your own income . Additional fees may be payable.

Call F1 Finance on 0870 4706610 to discuss how much you can borrow

How much deposit will you need?

Typically you will need to put down a deposit of at least 25% of the property value. However, F1 Finance have access to a number of lenders who will accept 20% deposit (depending on your circumstances) although these may incur an additional fee .

If you are buying under value then it is possible to raise additional funds after 6 months against the actual market value although we have one lender who will consider this after the first mortgage payment.

What tenants are acceptable?

It depends on the lender, for example some lenders will not lend on properties occupied now, or in the future, by Department for Work and Pensions (formerly the DSS) tenants. We can advise on the lenders who will accept these types of tenant.

How will I find a tenant?

Most letting agencies offer a tenant finding service whereby they advertise your property, conduct viewings and take references and undertake credit checks on prospective tenants. Once contracts have been signed you take over management of the property.

Tenants can also be found by advertising your property in the paper and internet advertising is increasingly used by potential tenants searching for a home. Family and friends may also know of someone looking to rent a property.

What properties are acceptable?

Property must be suitable for letting – it must be in an area where there is good demand for rented property and the monthly rent is of a fair level for property and location.

Many lenders do not lend on current or ex-local authority flats and houses. Freehold flats are also a problem as are flats over shops – especially over takeaways, restaurants and late opening shops and bars. Some lenders will also not lend on ex-local authority houses. Generally other freehold properties are suitable, as are leasehold properties with at least 40 years remaining at maturity of loan provided there is no clause in the lease prohibiting letting the property.

When choosing a property think about what type of tenant you will be wishing to attract, for example do you want students, families or professionals. Location and decorative order will have an effect on the desirability of your property.

F1 can help choose the correct lender for the type of property. Lenders may also stipulate a minimum market value or loan size.

The tenancy agreement

You and your tenant(s) will have to both sign a tenancy agreement. The most common form is a six month assured shorthold tenancy. This protects both you as the landlord and the tenant(s). This can be purchased from many office supply shops or free if you are a member of the National Landlords Association - NLA

Should you use an agency either to find a tenant or manage your property, they should provide the agreement for signing.

Other types of tenancy are possible such as weekly licenses for Houses of Multiple occupation.You may wish to seek further advice about the clauses within the agreement.

F1 Finance can help you find the most cost effective buy to let mortgage to suit your investment property.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR OTHER LOANS SECURED ON IT.

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