Buying to let – what you need to know

Buy to let house

Are you looking at buying an additional property with the intention of renting it out? This can bring in extra income as well as give you an asset for future capital gain. If you come up against hard times in the future, you have the opportunity to sell the property and get your money back. However, the rules are a little different when it comes to getting a mortgage for one of these properties.

Do your buy-to-let homework

The idea of getting a property on a buy-to-let basis can seem really appealing but it’s essential that you research the market properly before you jump into anything. You need to know what all the benefits are but also be aware of the risks.

If you buy when property prices are high, you could stand to lose money if the market suddenly drops and your property loses thousands off its value. Because of reasons like this, you need to ensure you are fully aware of the market before you make any final decisions.

Estate agent for sale signs

Get your mortgage sorted

If you are new to the buy-to-let mortgage idea, you may not be aware that a lot of lenders will ask for a considerably larger deposit than if you were buying to live somewhere. You need to ensure that you make the lender aware what you are planning to do with the property because they will look at your finances in a different way as well.

Some banks and building societies offer mortgages that are tailor-made for buy-to-let. This means there’s no need for any smoke and mirrors about what you need to borrow the money for – no pretending you are buying the home for yourself.

Cambridge Building Society has a buy-to-let guide with more information about how mortgages work.

Know the numbers – buy-to-let taxation

You need to work out what you can realistically charge in rent each month and then find out if you can afford to pay the mortgage. Bear in mind that you will still be liable for the mortgage payments if you don’t have any tenants living in the property so you should have a back-up plan in mind.

Of course, rented accommodation is in high demand, particularly as many people cannot afford to buy a property now. The housing crash eventually caused a rise in the deposits required, forcing a lot of people out of the market. You need to know what amount of rent you can charge each month to ensure you’re in line with the competition but also so that you can make sure you have enough to cover all the costs.

You may be tempted by adverts for guaranteed rental income from property management companies, but you should beware of false promises and do your own research.

There is also tax to pay on the income derived from your buy-to-let property. Not only income tax but capital gains tax, too, if you are selling a home that is not the one you actually live in. Read all about the tax implications on the government website.

House search

Pool your information

There are lots of things that you need to consider if you’re going to purchase a buy-to-let property and it is not something that you should rush into. The more knowledge you can arm yourself with, the better prepared you will be in the long run.

You would do well to speak to someone who has already been through the buy-to-let process so that they can share their experiences and give you some pointers of things to look out for. Ultimately, the more you plan and the more you know, the smoother the whole process should be.

See also: Ten tips for buy-to-let, from This Is Money.

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