Is buy-to-let right for me?
Investing in property is an attractive venture which many people do as a means of making money. The Scottish buy-to-let market is particularly attractive at the moment, with many investors looking to buy properties in cities such as Edinburgh, as opposed to London. However, it can be difficult to know where to start with property investment, so we asked Lee Graham, Mortgage & Protection Adviser at Mortgage Advice Bureau Scotland, to share his top 3 buy-to-let tips.
1. Assessing your finances
A good place to start is by assessing your finances to see if this could be an affordable investment for you and how you will fund the initial investment. Bear in mind that many lenders require you to earn at least £25,000 from a source not related to letting, as well as providing a minimum deposit of around 25% of the property value.
The market can be quite unpredictable at times, so it’s important to be prepared for this. It’s wise to have funds, aside from your landlord income, to insure you against any downturns, as well as a back-up plan for paying your mortgage during any periods of your property being unoccupied.
2. Is the Investment worthwhile?
Buy-to-let is a medium to long term investment, so the first thing you might want to ask yourself is, can I afford to tie my money up for a period of time?
1. How much you can borrow
Typically, landlord mortgages require a higher deposit than you’d need for a residential mortgage, meaning the loan-to-value (LTV) ratio could be smaller than other mortgages, such as first-time buyer mortgages, for example. Buy-to-let mortgage rates can vary depending on several factors, such as:
- Your credit score
- How much deposit you’ve put down
- How risky the loan is
- The type of mortgage product recommended for your circumstances
The type of tenants you let to can also impact the availability of mortgage lenders, as not all lenders will lend on all tenant types.
2. Rental yield
Once you’ve purchased the property, and therefore know the cost for stamp duty etc., and how much you can expect to receive in rent, you can then work out your exact rental yield.
For example, this could be: Property value: £165,000 Rental income (monthly): £700.00 Your expected rental yield: 5.09% If, after you’ve done the calculations, this amount isn’t quite what you expected, then you can make a decision whether to go ahead with your buy-to-let venture.
3. Consider all the costs
There are many additional costs to consider on top of the property purchase price, such as letting agent fees, legal fees for your solicitor, income tax and capital gains tax, buildings insurance and many more, so it’s important to note all of these down when assessing your affordability.
If the property you’re investing in is over a certain price, you’ll have to pay a lumpsum tax known as Land Building Transaction Tax (LBTT) in Scotland, Stamp Duty Land Tax (SDLT) in England and Northern Ireland, or Land Transaction Tax (LTT) in Wales. The price you’ll pay will vary on the amount you paid for the property. This price will also vary depending on whether you already own a property in the UK.
- A property under £145,000 - no LBTT
- A property between £145,000 and £250,000 - you pay 2% LBTT
- A property between £250,000 and £325,000 - you pay 5% LBTT
- A property between £325,000 and £750,000 – you pay 10% LBTT
- A property over £750,000 – you pay 12% LBTT
Buyers who already own a property will also have to pay an Additional Dwellings Supplement (ADS), which is 3% of the total purchase price of an additional residential property purchase of £40,000 or more.
Seek professional advice
We understand that no two mortgages are the same, therefore we would always recommend you seek professional advice. Please note, your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
At Mortgage Advice Bureau, our knowledgeable and experienced buy-to-let Portolio Client Manager Lee can search thousands of mortgages for you, including exclusive deals and lenders that you wouldn’t otherwise have access to. Please do not hesitate to contact Lee if you have any questions about buy-to-let mortgages. Portolio work alongside MAB to assist clients find their 1st or next buy-to-let property investment.
To speak to Lee, call 0800 652 6649 or email firstname.lastname@example.org
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