17-08-2006
There has never been a better time to become a landlord.
Statistics from the Council of Mortgage Lenders (CML) show that buy-to-let lending totals exceeded the previous half-year record by more than a fifth in the first six months of 2006.
Many providers now offer buy-to-let loans worth up to 90 per cent of the home value. The buy-to-let market is booming and securing a mortgage on a rental property is becoming more viable every week as providers ease their lending criteria.Some lenders provide a mortgage even if projected rental returns do not exceed monthly repayment commitments.
The recent base rate increase by the Bank of England will dent landlords' net yields, yet demand for rental property will remain "strong" in the meantime, according to Ray Boulger, senior technical manager of independent mortgage expert Charcol.
"This month's base rate rise, and fears of another later this year, is likely to deter some potential first-time buyers from taking the plunge into the property market", thus forcing them to continue renting, he explained.
CML figures also indicate that fewer buy-to-let borrowers are in arrears than across the mortgage market as a whole, which has allowed lenders to lower their minimum rental requirements and raise their maximum loan to value rates.
"These changes allow the astute investor to remortgage to release equity to provide a deposit for a further purchase," notes Mr Boulger.
When it comes to approaching a mortgage lender to negotiate the terms of an investment deal, there are some considerations to take into account:
- Some buy-to-let mortgage providers will take your salary into account when calculating a monthly repayment structure, though others will not. For instance, certain lenders will be prepared to lend a multiple of your salary plus a proportion of expected rental revenue.
Even if a lender is prepared to offer a loan deal in which rental income only exceeds monthly repayments by, say, 15 per cent, you must consider if this is viable. Many properties will require refurbishment, carpeting or furnishing - depending on target audience - before it is ready for tenants. This should be carried out as soon as possible to allow time for viewings and tenant timescales.
Either as a result of this or bad luck finding a suitable tenant, the home may remain unoccupied for longer than expected, denting rental yields and putting you in arrears. Unexpected costs from accidental damage may also make a dent in profits. Make sure you invest in suitable insurance and specify in the terms of the contract that the tenants should keep areas such as the garden, for instance, in good condition to avoid paying over the odds.
- Any other outstanding mortgage commitments will inevitably reduce the maximum loan available to you, though leading banks and building societies now offer buy-to-let loans worth up to £1 million.
- Providers will also insist on a larger deposit for a buy-to-let deal than a standard mortgage. It may be tempting to opt for a lower proportion, though rates will become more competitive if you can afford between 20 or 25 per cent of the loan value.
Finally, to save money, it is worth offsetting mortgage interest payments, agents' fees and any maintenance costs against rental income so as to reduce your tax liability.
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