Buy-to-Let is becoming an ever more popular form of investment for the future. Buy-to-Let is a property specifically purchased to rent out. Since the introduction of Assured Shorthold Tenancies, there’s been a rapid expansion in the amount of finance schemes available specifically for novice and professional investors to buy property, known as Buy-to-Let mortgages. The benefits for a Buy-to-let investor can mean a stable income from rent, and together with rising house prices, this means it’s become a popular way to invest.
Buy-to-Let is not for everyone, so perhaps it’s time to think about what purchasing a Buy-to-Let property would mean. This type of investment is not a quick transaction and you may be tying your investment up for a long time before seeing a return. When considering Buy-to-Let you have to consider that you may not earn a profit but, buying the right sort of property, having first sought expert advice from Belvoir Shrewsbury, can help you to make the most of that investment. The property market is fluid and prices can go up and down, so don’t fall into the trap of assuming you’ll be able to sell the property to repay the mortgage. If you sell the property for a loss, which does not cover the mortgage, you would need to make up the difference.
A Buy-to-Let investment is substantially different from owning your own home. When you become a landlord you have legal responsibilities to both the tenant and mortgage lenders. When considering a Buy-to-Let mortgage you need to remember that if your property is unoccupied and there is no rent coming in, you will still need to keep up with monthly mortgage payments.
The best result for a Buy-to-Let landlord is your property achieving a healthy rental income followed by a potential capital windfall when you come to sell. However, if poor buying decisions are made you might end up with an empty property that costs you money. For those who like a challenge and are willing to do their homework, Buy-to-Let can be a great success. Taking expert advice from someone like Paul Wallace-Tarry, Director of Belvoir in Shrewsbury, is essential to help you make the right decisions to maximise your return, so call him on 01743 242000.
Buy-To-Let Tips:
Do your research, and invest time in educating yourself about the rental market.Consider what funds you have and what borrowing you need.Find trusted professionals; mortgage lenders, brokers and conveyance solicitors.Research your investment location: know your market, your customers, and what planning/licensing is required.Test your investments against higher interest rates – how would this affect your yield?Look at adding value to your invested property.Take advice from a Buy-to-Let expert such as Paul at Belvoir to ensure you are fully informed and able to make the right buying decisions, call 01743 242000 or e-mail pwt@belvoir.co.uk
Finding the right Buy-to-Let property:
To get a property that will give you a good level of rental income and capital growth, you’ll need to understand what will appeal to tenants. So put personal preference aside because what appeals to you may differ from potential tenants. Start by looking at areas and the types of property that are currently in demand, as well as transport links and government regeneration money, because any changes that happen locally can affect the demand and rental prices. Your local Shrewsbury Belvoir office will be able to advise you on which type of properties has the demand for tenants and what areas are sought-after. They will also be able to give advice on the type of tenant who will want your chosen property – for example families or students. Utilising local rental knowledge is extremely important, sometimes the ideal property for return on investment won’t be the one you would choose to live in.
Properties that tend to let quickly are usually close to public transport links and shops. Potential tenants also look for properties with good storage, and kitchens/bathrooms that are structurally and visually appealing. Families also see outdoor garden space as a must have. If you have already purchased your Buy-to-Let property, it’s still worth seeking expert advice from us, as we can help you to make the most of that investment so that it appeals to the right sort of tenant. If you are considering a Buy-to-Let property, please come and discuss this with us at our Belvoir offices at 23 Swan Hill, Shrewsbury, SY1 1NN or call 01743 242000.
Landlord Duty of Care
Becoming a landlord is a huge commitment and responsibility. We encourage you to research this role before making any decisions. That way you are prepared for what lies ahead, and able to reap the rewards. Looking after a rental property should be taken very seriously and landlords who neglect to maintain properties adequately may find themselves in breach of section 11 of the Landlord and Tenant Act. Instructing Belvoir can take a lot of the stress and strain out of being a landlord as we can fully manage your property and the tenancies for you.
Tenancy Agreements
The tenancy agreement is a contract between you and your tenant. Make sure you have an appropriate tenancy agreement in place, and that this has been signed before the tenant moves in. The tenancy agreement outlines any arrangements about the tenancy, and both parties must up hold this contract.
You must protect your tenant’s deposit in a government-approved scheme if you rent the property on an Assured Shorthold lease. The Housing Act 2004 came into effect on 6 April 2007, and the landlord or letting agent must cover all deposits taken within 14 calendar days of receipt. If there are any disputes they can act as an independent agency that will resolve any disputes without the need for court action. if you use Belvoir to look after your property, we will protect your tenant’s deposit in an approved scheme as standard.
Property Safety
When you become a landlord you’ll have a number of legal responsibilities. You will need to ensure that your rented property is free from hazards, making sure all gas and electrical appliances are safe. You must make sure that they have been installed safely and that they are maintained regularly. You need to follow fire safety regulations and ensure that smoke alarms are installed.
Finances
Financing this purchase is one of the biggest considerations at this point, given the nature of the investment and the amount of money you are about to spend. It is worth considering the upfront cost of the property itself, and also the fees involved in the purchase. There are also ongoing costs for a Buy-to-Let property including development and long-term maintenance of a property.
Buy to Let Mortgages
One of the most common ways of buying a property for let is with a Buy-to-Let mortgage. These are specifically designed for this purpose as most Buy-to-Let mortgages are interest-only, meaning you don’t pay anything off the amount you borrowed until the end of the mortgage contract when you will repay the total amount. However a repayment mortgage is thought to be the less risky type of mortgage. It is worth remembering that Buy-to-Let mortgages can have higher interest rates than other mortgages but, can help you to become a property investor. We advise you to compare what is available and talk to mortgage brokers who can help you find a suitable deal. Generally, Buy-to-Let lenders will ask for a bigger deposit than other mortgages, and can be anywhere between 15%- 30% of the property’s value. The more you borrow from the lenders, the more likely they are to perceive you as a higher risk and charge a higher interest rate – so don’t expose yourself more than you need to. Buy-to-Let mortgages tend to have tougher conditions that a normal mortgage.
When choosing a mortgage you should think about:
How much do you have as a deposit?How much you want to borrow overall?Whether the mortgage has a product fee
The maximum amount you can borrow is connected to the rental income. Your mortgage lenders typically need the rental income to be 25%-30% higher than your mortgage payment. This is to ensure that if there are fluctuations in the interest rate you will still be able to cover the monthly mortgage payments. In order to determine what your rental value might be, research the local rental properties in the area, check the local newspapers and then call Paul at Belvoir who can help you assess the rental value for similar properties.
Don’t forget to budget for the costs that accompany taking out a mortgage. Visit belvoirlettingsmortgages.com for an instant quote or call 01743 242000 to speak to our experts.
Buildings and Contents Insurance
As a landlord, you should protect your investment from any risk of damage. Specialist landlord insurance can help to cover those unexpected problems. If you have Buildings and Contents Insurance it will cover you in the event of an incident or accident. It should also cover your liability as a landlord and loss of rent. You can also typically add contents cover, in case of damage to any possessions. A usual Buy-to-Let property insurance costs around £200 a year and you can normally add multiple properties under one policy for a discount. Belvoir have a selection of market leading insurance products available, to learn more, e-mail pwt@belvoir.co.uk or phone us on 01743 242000.
Taxes
There are four different types of taxes that you should be aware of and take the time to understand when buying a property to let; Stamp Duty, Income Tax, Capital Gains Tax, and Inheritance Tax. These taxes will apply whether you own a single property or want to build your own portfolio. Any costs associated with taking loan finance are tax deductible and arrangement fees can also be claimed back that year. One of the benefits of an interest-only mortgage means your mortgage repayments will be tax deductible.
Stamp Duty
This is a tax that everyone has to pay regardless of what kind of residential property you purchase. Stamp duty is categorised in price brackets and dependant on final purchase price of the property, which will determine the stamp duty rate. Stamp duty is a one-off tax, that you pay at the time of purchase.
Stamp Duty Rates:
£0 – £125,000 = 0%
£125,001 – £250,000 = 1%
£250,001 – £500,000 = 3%
£500,001 – £1,000,000 = 4%
£1,000,001 – £2,000,000 = 5%
Over £2,000,000 = 7%
Income Tax
As a landlord you have financial responsibilities, and you will have to pay Income tax on your rental income. This amount is anything that exceeds your mortgage interest payments, but you can reduce the tax you have to pay by deducting certain allowable expenses from the day-to-day running expenses. You will need to declare any rent you receive in your Self-Assessment tax return, and your tax will then be calculated depending on your income tax banding. This legal requirement came into force in April 1997 and a penalty of up to £3000 can be charged for each year of assessment where there has been a failure to maintain or retain adequate records.
Allowable expenses can include:
Interest on Buy-to-Let mortgage paymentsMaintenance costsLetting agency feesBuildings and contents insurance premiumsCouncil Tax – if paid by youUtility bills – if paid by you
A good accountant can advise you on the allowable deductions and answer any questions you might have. This way you can make sure you don’t pay more tax than you legally have to. HM Revenue and Customs require you to keep a record of your income and expenses as a landlord; which must be kept for a minimum period of six years.
Capital Gains Tax
Capital gains tax is only payable on the profit you make when you sell an asset.
There is an annual tax-free allowance of capital gains, and anything over that allowance means you will pay Capital Gains Tax. Capital Gains Tax is charged at 18% or 28% of the profit, which is calculated on your taxable income and the total capital gains you’ve made over the year. If you sell a Buy-to-Let property, you will need to declare this on your Self-Assessment tax return. The amount of Capital Gains Tax you must pay will be worked out automatically by HMRC.
Inheritance Tax
No one likes to think about it, but it’s very important to plan for Inheritance Tax. A Buy-to-Let property will form part of your estate and therefore may be accountable for inheritance tax. If an individual’s estate exceeds £325,000 or up to £650,000 for married couples/civil partners, Inheritance Tax is charged at 40% on everything above this threshold.
Call Paul Wallace-Tarry for B-T-L advice on 01743 242000 or e-mail pwt@belvoir.co.uk
