Buy
to Let Lending
Business
lending is not regulated by the Financial Services Authority.
As you are collecting money from a tenant the
mortgage
may potentially be regarded as a special commercial type of
loan or a buy to let. Most landlords are looking to make a
profit perhaps only from capital appreciation in time which
is why many only go for an interest only mortgage which would
also have tax advantages whilst making lower overheads to
their business of renting property.
Many
high street lenders now cater for this type of lending as
it has boomed in the UK over the last 10 years with the high
rise of property prices and lower returns on investments.
Many people regard this as a future nest egg or type of pension.
If the property was purchased a few years ago the rental income
can be high for profit but a recent purchase would be lower
as the higher property prices mean on average landlords have
to have a higher mortgage to cover the purchase.
Let
to buy
A
let to buy mortgage is where your mortgage company will allow
you to purchase a new property to live in and rent out your
old property with them. If the rent adequately covers the
original mortgage then the lender potentially may except you
servicing two mortgages if all of the lender's standard criteria
is met.
Letting
Mortgage
When
deciding to buy to let property caution should always be taken
as there are no guarantees of rising house prices and rental
income may fall with market saturation. Also you may have
dead times (means that you are responsible
for maintaining the mortgagee until such times as this situation
has been rectified) in the rent when
good tenants are hard and expensive to find. Tenants can cause
huge problems with landlords for example not paying rent,
disagreements, property abuse and damage. Letting a property
can be risky and very stressful. Students and DHSS tenants
potentially may be higher risk due to low income. Low rental
income indicated from the valuation report may mean placing
a higher deposit down against the loan. Property management
companies may also have to be employed to manage and find
tenants.
Unknown
factors may go against a property for example if it is a flat
above a shop that was kinetically one type of business that
did not disturb the tenants or property valuation for example
a flower shop, but a business change could be a nuisance and
reduce the valuation if the new business owners had a late
night taken away.
Landlords
insurance
The
landlord will have to have specialist landlords' insurance
in place. With a letting mortgage this will be mandatory and
the solicitor will want to see a policy in place with the
lender's name on the schedule along with the correct sum insured
for rebuild costs. This only covers the rebuild costs but
not the current market value on the buy to let property. Standard
residential building and content insurance will not be valid.
The tenants may wish to purchase their own contents insurance.
If the landlord supplies a fully furnished property to rent
then he may put content insurance in place to protect the
contents supplied. Tenants can often take less care of a property
than an owner as they regard the property as temporary and
not theirs.
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