Buy-to-let properties have seen an enduring popularity in markets up and down the country, giving those in a strong financial position the opportunity to secure more bricks and mortar assets and use them to generate an additional income each month.
There's some key information to take into consideration if you're thinking about getting in on the buy-to-let market, so take a look at the points below to see whether buying property to let is the right thing for you.
What is buy-to-let?
To put it in simple terms, buy-to-let means that a property has been purchased with the specific intention of being rented out to tenants, rather than lived in buy the owner.
This can be used as a form of investment where the rent is used to cover the mortgage repayments, with any excess acting as an additional income, and the property may make a capital gain when it comes to selling the property at a later date.
Taking out a mortgage for a buy-to-let property
If you are unable to buy the property your planning on letting out outright, then you'll need to apply for a mortgage to make up the gap in your funds. Because of the nature of your purchase, you'll need a specific buy-to-let mortgage as the standard, 'residential' mortgages can only be used if you intend on living at that address.
Buy-to-let mortgages use the potential rental income each month as the primary income source, while your salary is factored in as a secondary income source. Lenders will usually want to see that the rental income will be roughly 25-30% more than what the mortgage repayments would be to check whether a potential mortgage will be viable or not.
Another thing to consider about buy-to-let mortgages is that you typically need a larger deposit than you would for a residential mortgage. Buy-to-let lenders typically want to see a down payment of 25% minimum, while some lenders might insist on a larger portion of the property value being covered by the deposit.
Can I get a normal mortgage and rent it out?
Put simply - no. In order to rent the property out, it needs to be under a buy-to-let mortgage rather than a residential mortgage. If you've got a standard, 'residential' mortgage and want to start renting the property out, you will likely have to remortgage the property under a buy-to-let mortgage. There some instances where you can get consent from your residential property lender to let out your property, but this is on a case-by-case basis.
Can I live in a buy-to-let property?
Just as you can't rent out a property with a residential mortgage, you are typically prohibited from occupying your buy-to-let property due to the distinction around what the property will be used for. Most buy-to-let mortgage contracts will have some form of wording within them that states the owner doesn't live in the property. If they're found to be doing so, the mortgage can be invalidated, and the lender can ask for it to be repaid in full.
Is buy-to-let a good investment?
Buy-to-let property investments can be an appealing alternative to other forms of investments, such as stocks and shares investments, due to the fact it feels more tangible being solid bricks and mortar. However, as previously mentioned, the viability of buy-to-let as an investment option can depend on a number of factors.
Buy-to-let investments will tie your finances up for an extended period of time, so it suits those who're willing to put in the time and effort to potentially see a reward at the end of it. However, profit is by no means guaranteed. The property market is constantly in flux, so you may find that your property doesn't increase in value as much as forecasted, but you could also find that value goes up based on investment in the local area.
Similarly, the amount of rent you are realistically able to charge may also be affected by the market rate of the area your property is in. Rents are not guaranteed, and the market trends are out of your control, so entering into buy-to-let assumes a level of risk around what you can realistically rent your property out at.
That said, by comprehensively researching an area and choosing the right type of property, you can go a long way to mitigate some of these concerns. There are plenty of cities which have thriving rental markets, so you can capitalise on that popularity and do your best to make your property competitive within that market.
How do I choose where to buy my property?
There are a lot of different factors which can go into making a successful buy-to-let property, one of which being the location. Cities are typically better for renting out properties due to being hubs for local business, meaning that people will likely want to live within the city to reduce their commute, with London and Birmingham being prime examples.
Picking up a property in a popular neighbourhood for young professionals can reduce the potential risk of your properly going without tenants for extended periods of time, and you can price your rent at a competitive rate against other properties in the market. This can also extend to commuter cities and towns near London where people opt to live instead of the capital, such as Reading and Watford.
Another option is looking at cities with good universities, as student properties can also prove to be good buy-to-let investments. As there is a new intake of students every year, you're likely to get new tenants each year which can secure your rental income. However, there are additional risks that come from student rents, including the fact that getting new tenants each year can be unpredictable in terms of how respectful they are of your property.
If you're interested in buy-to-let properties or properties in popular locations which could be well suited for buy-to-let, take a look at our property developments and see whether any fit your criteria. With Berkeley Group properties, you can expect to find high specification properties in fantastic locations which would appeal to any potential tenant, meaning your potential property for rent stands out from the crowd. Get in touch with the Sales Teams at any of our Developments to find out more.
As a top-level guide, we have outlined the most frequently asked questions below:
What are the criteria for a buy to let mortgage?
This very much depends on the bank or building society you use however generally a minimum salary of 25k a year and have owned and lived in your existing property for at least 6 months.
Is a buy to let a good investment?
If you are in a financial position to do so, a buy-to-let property can be a great investment as there is continued demand- d- for rental properties.
Get in touch with the Sales Teams at any of our Developments to find out more.
Can you live in your own buy to let?
No, mortgage regulation works both ways. Just as you cannot usually live in a mortgaged buy-to-let property, you can't rent out a mortgaged residential property.
Is it easy to get a buy to let mortgage?
There are several factors influencing this such as your annual salary, age, and credit history.