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Let
to Buy Mortgages
Frequently asked
questions
Letting
your present property
As the buy to let market continues to grow, so does the army of
amateur landlords. But how many are prepared for the legal and financial
responsibilities of being a landlord? Our notes here are designed
to provide an insight for you.
Getting your
finances set up tax-efficiently at the outset is also important.
If you hope to minimise your tax bill, it might suit your circumstances
to finance the purchase, at least in part, with an interest only
mortgage, as the mortgage interest (but not the capital) on a buy
to let property is tax deductible against letting income.
Finding
tenants
Finding suitable
tenants is also crucial to the success of buy to let, so careful
vetting of potential tenants is essential if you want to avoid months
of unpaid rent.
You can do this yourself via credit reference agencies such as those
shown in the right-hand column.
Alternatively, you could ask a letting agent to do this for you
Amateur landlords
often prefer to use a letting agent who is a member of the Association
of Residential Letting Agents (ARLA) as association members are
required to abide by a code of conduct and a complaints procedure.
Such agents
usually charge 8%-10% of the first year's rent to find and install
a new tenant which will include drawing up the tenancy agreement,
ensuring that the utility bills are in the tenant's name and securing
one month's deposit from the tenant. Compiling an inventory may
be charged as an extra.
If
the agent manages the property on an ongoing basis, this will normally
cost you around 15% pa of the annual rent and if the tenant remains
for a further year, agents charge a "renewal" fee of 6%-8%
+ VAT for drawing up another rental agreement.
Did
you know?
Not
all landlord realise that they are required by law to have a gas
inspection carried out on a let property at least once a year and
at the start of each tenancy, tenants must be given a copy of the
inspection certificate.
For peace of mind, it might be a good idea to have the electrical
circuits checked as well, although this is (currently) not a statutory
requirement.
Extra
deposit
Think
about asking for six or eight weeks' deposit, rather than the usual
one month, as tenants may fail to pay the last month's rent, leaving
you with nothing to pay for damage and repairs.
You
may decide to have the rent paid to you directly rather than allowing
the agent to collect it. Some agents charge a collection fee and
you could lose the money if the agent goes bust.
For tax purposes,
all of the costs mentioned above might be offset against tax, as
well as legal fees, council tax, insurance, service charges, ground
rents, 10% of the annual rent for wear and tear, and repairs (providing
you are replacing like with like and not upgrading the property).
Assuming
that you have a fairly large interest only mortgage on the property,
you should find that your tax bill is relatively light, although
any tax payable will be at your highest rate.
Buying
your new property. What next?
Usually, you will need to seek permission from your present lender
to let out your present property, and of course you must notify
your buildings and contents insurer too.
Many mortgage lenders might not allow you to do this, so this is
where we can assist. We can promptly provide you with a list of
lenders who should be happy to let you switch your mortgage, allowing
you to let your property. We can also provide current interest rates,
repayment figures and detailed information on any that appeal to
you. Of course, we can make all arrangements for you - that is our
function!
For your new
property, we can again provide you with information on lenders and
their very best rates too, who can accept another mortgage being
in place. Again, we are here to help make all arrangements for your
new mortgage, leaving you free to concentrate on moving to your
new home.
Interested?
Please
call us at The Mortgage Helpline
for information and illustrations,
on: 01253 404154
Important
disclaimer.
Please note that all articles within The Mortgage
Helpline website do not constitute regulated financial advice, which
recommends a course of action based upon the specifics of your personal
circumstances.
The articles are intended to provide general personal financial
information. Any statement regarding financial services products
and tax liability is based on legislation and tax practices as at
1 January 2005, which is, of course, subject to change. The value
of any tax benefits or reliefs depends upon the individual circumstances
of the investor.
Always seek the advice of a qualified accountant to satisfy yourself
of any taxation issues. When investment performance is mentioned
you should remember that past performance is no guarantee of future
performance. Where products have an underlying investment content,
in many cases the value of the investment can fall as well as rise.
Where mortgages or secured loans are explained do remember that
your home may be repossessed if you do not keep up repayments on
a mortgage or other loan secured on it. All mortgages are subject
to underwriting, status and are not available to people under the
age of 18.
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