Buy to Let / Let to Buy

It's essential that you do your research before moving into the BTL market. You need to be confident that the potential rental income will comfortably cover the mortgage and all other expenses. Consider letting agents fees, maintenance costs, insurance and void periods.

Before viewing properties, sit down with a pen and paper and write down the cost of houses you are looking at and the rent these properties are likely to generate. Compare different properties by calculating the potential yield. The yield is the annual rent received as a percentage of the purchase price. i.e. a property providing £1,000 monthly rental (£12,000 per annum) on a property valued at £250,000 has a 4.8% yield.

Rent should be the key return for buy-to-let. Most buy-to-let mortgages are done on an interest-only basis, so the amount borrowed will not be paid off over time. If you can get a rental return substantially over the mortgage payments, then once you have built up a good emergency fund, you can start saving or investing any extra cash.

Buy-to-let lenders typically want rent to cover 125% of the mortgage repayments and the majority will require 25% deposit, or even larger. Rates will be higher than residentialrates but be careful with headline grabbing rates as lower rates will often come with large arrangement fees. Whether you take a low rate and larger arrangement fee or higher rate with a smaller or no arrangement fee will very much depend on your personal circumstances and the anticipated rental income. Some lenders use a notional rate when calculating rental yield but some will use the product pay rate. A lower rate will ultimately allow you to borrow more but the overall costs over the scheme period could be higher.

Our mortgage experts are here to talk through all options available to you.

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