Buy to let investment
Is buy-to-let a good investment?
With rental incomes steadily increasing over recent years, letting out a property can be a good way to bring in a regular income. If you can find the right property and the right mortgage, it is possible to make a rental profit of around 5 – 10% depending on where you’re based.
Although buy-to-let can be a good investment there are risks to be aware of and consider. It’s important to make sure you’ve got your maths right and thought about everything renting out a property entails before committing to a mortgage and becoming a landlord.
Finding the right buy to let mortgage
Getting the right mortgage is vital to ensuring that you make a good return on your investment. Buy-to-let mortgages tend to be more expensive than residential loans because they pose a bigger risk to the lender. They usually require a higher deposit too, typically a minimum of 25%, although if you have a deposit of 40% or more, you’re likely to get better deals.
Another thing to consider is that most buy-to-let deals are interest-only mortgages, so once the term is up you would need to sell the property to clear the loan or pay it off another way. Selling may suit you fine if you never intend to live in the property, but if you don’t want to sell you will need to have a different repayment plan in place.
Rental income from your buy-to-let
Lenders will look at the potential rental income from the property to decide how much to lend to you. Take a look at local property listings and speak to letting agents to find out how much similar properties are on the market for to get an idea of how much rental income you could get. Once you have an idea of what your rental income will be, your First Mortgage advisor will be able to talk you through your options and find you the most suitable buy-to-let mortgage package.
To ensure you can start to make a profit, you should look to make a rental income of at least 125% of your mortgage interest payments, plus the other costs of renting out a property. These include:
- Getting the property ready to let out.
- Ongoing costs such as maintenance, insurance and letting agent fees (if you choose to use one).
- Void periods when the property is empty between tenancies, as this will make a dent in your income.