Buy-to-Let Investment

Depending on your reasons for making this decision there are many benefits in investing with buy-to-let properties. There are definitely a few things to consider, and we cover this in our buy-to-let mortgage guide. 

For common questions such as deposit - the minimum deposit you would need is 15% but this would not give any choice of lender or product. A deposit of at least 25% will give you a wide range of lenders and products to choose from. 

With your intention being to let the property you will need to arrange a buy-to-let (BTL) mortgage. If you arrange a residential mortgage with the intention of letting the property this is mortgage fraud, and you could lose your property and liberty. 

Even with a buy-to-let mortgage you have a choice of repayment methods and can choose either interest only, capital repayment or a mixture of both. Most lenders now let you pay an extra 10% of the balance outstanding each year without incurring an early repayment charge (ERC) but do check there are a few who do not. Once out of your ERC period you will usually be able to over pay as and when you like. 

As far as the size of the mortgage is concerned, this will depend on the rental income. Lenders each have their own calculations, but typically they will want the monthly rental to be the equivalent of 125% of the monthly interest payment.  For example:  If your monthly interest repayment is £200, then the monthly rental must be at least £250. 

You can use our buy-to-let mortgage calculator for a better estimate of how much money you can borrow to fund the purchase of a second home or a property that you intend to let out to tenants 

Before making an investment purchase to buy a home for rental purposes, there are several important factors to consider. 

Here are some key considerations: 

1. Location - research the location thoroughly to ensure it's suitable for rental investment. Look for areas with strong rental demand, good amenities, low vacancy rates, and potential for property appreciation over time. Consider proximity to schools, public transportation, and other attractions that may attract renters  
2. Market analysis - analyse the local rental market to understand rental rates, occupancy rates, and trends in the area. Evaluate supply and demand dynamics to determine if there is sufficient demand for rental properties in the area  
3. Financial analysis - conduct a comprehensive financial analysis to determine if the investment makes financial sense. Consider factors such as purchase price, ongoing expenses (e.g., mortgage payments, property taxes, insurance, maintenance, property management fees), potential rental income, vacancy rates, and potential for capital appreciation  
4. Financing options - explore financing options for the investment purchase, such as traditional mortgages, buy-to-let mortgages, or other financing arrangements. Consider the deposit requirements, interest rates, loan terms, and eligibility criteria for each option  
5. Legal and tax considerations - familiarise yourself with the legal and tax implications of owning a rental property. Understand landlord-tenant laws, rental property regulations, and tax obligations associated with rental income, property depreciation, and capital gains. Consider consulting with legal and tax professionals to ensure compliance and optimise tax efficiency  
6. Property management - decide whether you'll manage the property yourself or hire a professional property management company. Property management involves tasks such as finding tenants, collecting rent, handling maintenance requests, and addressing tenant issues. Evaluate the costs and benefits of each option based on your preferences and resources  
7. Risk management - assess potential risks associated with rental property investment, such as property damage, tenant turnover, non-payment of rent, and market fluctuations. Consider strategies to mitigate these risks, such as insurance coverage, emergency funds, thorough tenant screening, and regular property maintenance  
8. Exit strategy - have a clear exit strategy in place in case you need to sell the property in the future. Consider factors such as market conditions, potential capital gains taxes, and your long-term investment goals  

By thoroughly researching and evaluating these factors, you can make an informed decision about whether purchasing a home for rental investment aligns with your financial goals and risk tolerance. Consider seeking advice from a mortgage broker and accountant to help guide your decision-making process. 

I also believe you would benefit from speaking to one of our independent mortgage advisers. Please call on 0330 433 2927. They will be able to look at your situation and advise you accordingly.