Becoming a landlord can be an exciting and rewarding prospect; from selecting a property with a potential profitable return, to taking care of your tenants. If you are planning on investing or are simply interested in learning more, here’s our top 5 steps to consider for a successful buy-to-let investment.
Do your research!
When deciding on an area to buy your buy to let property, choose an area that prospective tenants would like to live in with attractive selling points such as; good transport links, schools and / or entertainment facilities – Use property websites such as Rightmove and Zoopla to help you with this!
When you have decided on an area, be sure to also speak to a local letting agent who can help you understand which properties are in demand and how much they rent for.
Hands-on or stress free?
Being a landlord comes with a lot of responsibility! If you choose to buy near to home, you will be close by should anything go wrong. But, if you choose to look further afield, using a lettings agency could be a wise decision!
Letting agents can help reduce the burden, by managing all the necessary advertising, viewings, screenings, inspections, repairs and rental income for you, and the cost for their services varies from a months’ rent for letting only, to an ongoing yearly fee of around 10% of your rental income for full-time management.
When you buy a second property for rental purposes, you need to take out a Buy to Let mortgage. Buy to Let mortgages are very similar to standard residential mortgages, but there are some important differences to note:
- You will need a minimum deposit of 25%, but the more you can put down, the better your interest rate will be!
- The amount you can borrow is calculated on the potential rental income of the property you are looking to purchase, rather than your own income
- Your annual rental income be at least 125% of the annual mortgage interest payments, to help you during tenant vacancy periods.
As expert buy to let mortgage brokers, we can tell you how much you can afford to borrow, and find you the best buy to let mortgage deal to suit your individual circumstances. When you’re ready to move ahead with your mortgage application, our dedicated support team will even handle this for you through to completion, to ensure that your application is a complete success!
What tax will I pay?
As with every property purchase, there are various taxes you will need to pay at some point in the buy to let property sales and purchase process:
Rental income tax: Any rent you receive is taxable and the rate of tax you will pay is charged in accordance to your income – 20% for basic rate taxpayers, 40% for higher rate and 45% for additional rate.
Allowances: You can minimise the amount of tax you’ll have to pay by deducting certain expenses (detailed below) from your taxable rental income up to 20%.
- Letting agency fees
- Buildings and contents insurance
- Council tax
- Utility bills (if you pay them on behalf of the tenant)
- Essential maintenance such as a roof repair or new boiler
Capital Gains Tax: If you choose to sell your buy to let property you will have to pay Capital Gains Tax on any profit you make from the sale, which varies between 18% and 28%, depending on your tax bracket.
Allowances: For the 2017/18 tax year, the first £11,300 profit you make is Capital Gains Tax free.
Stamp Duty Land Tax (SDLT): when you buy an additional property that is not your main residence, you have to pay Stamp Duty Land Tax on it, dependent on the purchase price of the property shown below:
- Less than £125,000: 3%
- £125,001 – £250,000: 5%
- £250,001 – £925,000: 8%
- £925,001 – £1.5 million: 13%
- £1.5 million+: 15%
As a landlord, you will probably have invested a lot of your money into your property, so it makes senses to protect it! Landlord Insurance provides you with the specialist level of cover you need to protect both the structure and rental income of your investment. But, not having the right level of cover can be disastrous – that’s where we can help!
Our mortgage and protection advisors will assess your personal requirements and tailor your cover accordingly, so you can be rest assured that both your investment and income are protected.
Managing day to day life as a single parent often involves balancing work and home, getting the kids to school, making their meals and staying on top of the chores, which can be difficult. Getting a mortgage by yourself may also not be easy, but it’s certainly not impossible when you take our advice!
Use your benefits to your advantage
Being a lone parent often means your income is low, which can have a significant impact on the amount mortgage lenders are prepared to let you borrow. You need to demonstrate that you are able to keep up your mortgage repayments and your benefits can help you with this.
Child Benefit, Tax Credits and Maintenance Fees, will all be taken into account by the lender when they calculate the amount they will allow you to borrow – Make sure you keep proof of these payments in a safe place, as the lender will need to see these!
Consider Government initiatives
There are a number of Government initiatives available to help people who are struggling to buy a home get on the property ladder:
Shared Ownership: Part of the Help to Buy scheme and enables you to buy a share (between 25% and 75%) of a new or existing property.
Right to Buy: If you have been living in social housing for more than 3 years, then you could be eligible to buy your home at a discounted price from your local council.
Bank of Mum and Dad
If you are struggling to raise a large enough deposit, a close family member may be able to help you:
Guarantor mortgages: A parent or close family member guarantees either a proportion or the entire mortgage debt and are ultimately liable for any repayments that are missed. Your Guarantor will however need to be able to either cover their mortgage and their agreed share of yours or have the majority of their mortgage paid off, and have a good few years left in employment ahead of them.
Family Springboard mortgages: A more popular option that enables a member of your family to provide 10% of the purchase price as security. If you keep up your repayments, they will receive their money back with interest.
Get specialist advice
As award winning mortgage advisors, we can talk you through all your available options and tell you how much you can afford to borrow at no cost or obligation to you, so get in touch!