Buy To Let Mortgages: A Landlords’s Guide
Over the last few years, and thanks in part to the changing landscape of property investment, the entire market is generating less profit. Despite the role of a landlord being an increasingly tough one with red tape, regulations and laws constantly evolving, the private rental sector can still make landlords a fair living. Buy to let mortgages are a mainstay of the industry and have their pros and cons. If you’re a landlord who is looking to invest in a property before listing it via an online property agency or brick and mortgage estate agent, then why not take a look at our handy little guide to buy to lets below.
What Is a Buy to Let Mortgage?
Most buy to lets are interest only, meaning you won’t have to spend a fortune each month to keep them ticking over. Although, mortgage lenders often require larger deposits with mortgage fees usually higher than standard mortgages. The mortgage is then paid off when the property is sold.
Around half of the private sector is upheld via buy to let mortgages, meaning that they still have a substantial weight behind them. If you’re currently think of one, then here are the main pros and cons.
What Are the Benefits of a Buy to Let Mortgage?
- Instead of using your own cash to buy properties, you can use a lenders. Something like £100k can be sunk into four properties with a £25k on each, instantly leveraging your investment as well as your property portfolio. This will mean your venture can be significantly more advantageous than simply buying one house.
- The more properties you have, then less likely you’ll be to suffer great financial losses, should the tenants in one stop paying rent.
- You’ll be able to generate a substantially larger revenue.
What Are the Disadvantages of a Buy to Let Mortgage?
- Mortgage relief is not available anymore, meaning that your initial expenses will be much higher, making it tougher to make a profit. You may also be pushed up into a higher tax bracket, which ends up making you a loss.
- It is no walk in the park, getting a buy to let mortgage. Lenders will scrutinise your finances endlessly as well as your credit history.
- There will be many stipulations about who can and who cannot rent the property from you.
- Interest rates can go up as well as down, and in the midst of inflation you may well find yourself loaded down with debt.
- Even if your property revenue starts to go down, you’ll still have to make monthly repayments. This can be tough in uncertain economic climates, particularly with unseen factors like Covid-19 which has cause a mass exodus of individuals from areas which were once prime locations – like central London.
- If you fall into negative equity, things could get serious. If your mortgage debt falls severely under your ability to pay it, you could risk losing a property.
As ever, the important thing is to do your research in the full knowledge of what it is you are about to take on and to be aware that unexpected circumstances, combined with debt and red tape can sink even the most foolproof business plans when it comes to generating revenue.
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As a landlord you will gain passive monthly rental income from your buy to let and capital appreciation as the years flit past. And it’s exactly this capital appreciation ...
February 12, 2021
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