When done correctly, a buy-to-let investment gives you the opportunity to enjoy healthy, long-term profits. In our buy-to-let guide we explain everything you need to know, including outgoing costs, mortgage requirements, tenant screening and much more.
Buy-to-let is when a property is bought by an individual for it to be let out to tenants. Letting out a property is a great option for anyone looking to invest and increase their income.
As a buy-to-let landlord, your income should generate a profit while being able to pay the mortgage payments comfortably each month.
There will also be various financial commitments you will need to pay during your time as landlord, such as:
Over time, the property will likely need various repairs and maintenance to be carried out and you will also be responsible for this.
If you require a mortgage to purchase a property, you will need to apply for a buy-to-let mortgage in the same way as a standard mortgage, either through a broker or via a bank or building society.
The main difference is that instead of looking solely at your salary, the lender will assess the potential rental income of the property to arrive at a figure they are prepared to offer. Most buy-to-let mortgages are also taken out on an interest-only basis, which means instead of repaying the loan itself, you’ll only pay the interest it accumulates. If you take out an interest-only mortgage, the full amount will be due once the agreement comes to an end.
Every mortgage advisor uses their own method to calculate the amount of ‘rental cover’ you’ll need every month. This means that your rental income will be equal to your monthly mortgage payment and a little bit more. The reason for this is to reassure the lender that you can continue to pay for the mortgage during periods where you may not have any active tenants.
Deposit requirements are usually quite high, with many requiring a down payment of at least 25% and a 40% deposit or higher.
Take some time to think about the time of tenants you want for your property. Whether it’s young professionals, families or students it will influence the type of property you buy.
Once you have the property, one of the easiest ways to find tenants is to screen by income. You should look for tenants that have a yearly income 30x the rent – for example, if the rent is £1,000, they should have a minimum annual salary of £30,000. The more affordable the rent to the tenant, the less likely it is that you will experience any payment issues.
It’s also a good idea to meet with tenants before you agree the tenancy, so you get a sense of their character. You’ll want to know that they’ll maintain the property while renting and if you live overseas, this can make a big difference for your peace of mind. Meeting the tenants also builds trust on both sides, which cultivates a stronger, and hopefully, longer-lasting relationship.
You’ll need to organise references to verify the tenant’s length of time in employment and salary and credit checks also must be carried out to ensure there are no red flags raised relating to previous payment issues. A Right to Rent check is a legal requirement that means you must verify the tenant’s legal status in the UK and their right to live here.
If you want to go ahead, a tenancy agreement needs to be drawn up including deposit details (which must be kept in a government-backed scheme) your contact details and length of tenancy.
Using an estate agent to market your property and to screen tenants can make this labour-intensive process much easier. Using a local, reputable agent allows you to utilise their expertise and experience to secure reliable tenants and ensure the tenancy meets all current legal requirements. They can also take care of all the references and the tenancy agreement and provide ongoing property management services that can make being a landlord much less stressful.
As a landlord you are legally required to:
If you’re looking to let out your property today, it is important to find the right estate agent to take the hassle out of your hands. Get in touch with our team to explore your options.Book a valuation