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Considering purchasing a buy to let property? Becoming a landlord can be a wise investment, providing you with another monthly source of income while owning a property that gains value over time.

Whether you’re brand new to buy to let or already have a property you’d like to rent out, we’ve asked local mortgage specialists, CLS Money, for their answers on common questions about property investment and how the buy to let process works.

From initial considerations on finding the right property to the criteria to get a buy to let mortgage, read on for some expert advice so you can start planning for an exciting investment opportunity.

Table of contents:

What is a buy to let property?

Unlike a residential residence, which is bought by an individual for them to live in, a buy to let property is purchased with the intention of renting out to tenants and generating an income through the rent charged.

What should I look for when investing in property?

When looking for a buy to let property, there are a number of things you should consider, including:

  • Finding a property that suits local demand and demographics
  • Looking for a property that is close to shops, amenities, good schools and transport links
  • Choosing an older property, as they are generally much larger and cheaper to buy than new builds
  • Avoiding areas where there are already lots of other investors, as rents will likely be more competitive

How much do you need to buy to let?

To purchase a buy to let property, you will need a deposit between 20% and 40% of the property’s value. The costs tend to be more than standard residential properties, as buy to let investments are viewed as a higher risk to mortgage lenders.

What is the criteria for a buy to let mortgage?

In order to obtain a buy to let mortgage, your rental income generally needs to be between 25 and 30% higher than your mortgage payment. However, as buy to let mortgage criteria differs from one lender to another, it’s best to seek advice from a specialist mortgage broker, who will help advise you on all your available options and find the best mortgage product for your needs.

What is a good yield on a rental property in the UK?

A good rental yield for a buy to let property is typically 7%. Anything below this could put you at risk of not having enough money to cover your mortgage payments, expenses and maintenance costs for the property.

Is it illegal to rent a house without a buy to let mortgage?

If you are considering renting your home, even just a room whilst you continue to live there, you will need to obtain permission from your mortgage lender first.

By not doing so, you are effectively committing mortgage fraud, which could result in you having to pay a penalty, such as a fee or a higher rate of interest. In extreme circumstances, your lender could even insist that the entire mortgage is immediately paid off in its entirety.

What tax do I pay on a buy to let?

When you purchase a buy to let property, there are a number of taxes you will need to pay as follows:

  • Stamp Duty Land Tax (SDLT). An extra 3% on top of the standard SDLT bands
  • Rental income tax. Declared on your Self Assessment tax return and charged in accordance with your income tax banding. From April 2020, this will be capped at 20%
  • Capital Gains Tax. 18% or 28% depending on your tax bracket. However, this charge only applies when a buy to let property is not only sold for more than the purchase price. But, also above the £12,000 profit allowance, once you have deducted your fees.

Our property management team here at Ayers & Cruiks have years of experience helping landlords through every step of the buy to let process. We can also recommend you to our preferred mortgage advisor to help you find the best buy to let mortgage for you.

Need support managing your property portfolio? Call us today on 01702 343060 – we’re here to help.

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