Buy to Let Mortgages - Invest to let

More and more people are jumping on the buy-to-let bandwagon.  With experienced landlords adding to their property portfolios, increasing demand from tenants and attractive buy-to-let mortgage rates, this might be a good time to consider this type of investment.

The fundamental requirement of a buy-to-let property is that it is capable of producing sufficient rental income to cover the mortgage payments and expenses. It is obvious, then, that careful consideration must be given to finding the right property in the right area. It appears that, after a few years of mediocre performance, London is making a come back on the buyers lists. Within the capital, there are variations in the market, but east London and the upgrading of the area for the Olympics is motivating investors in the property market. Other large cities are worthy of consideration too and university towns attract a large number of would-be tenants.

There is also a government prediction of an increase of more than 2 million extra households in the UK over the next 10 years or so. This is due in part to the tendency towards smaller households and also to a steady increase in immigrants from other EU countries.

When it comes to a buy-to-let mortgage, building societies need to know that the property will generate enough income to cover the mortgage and related expenses before considering granting a loan.

Expenses to be taken into consideration are maintenance, buildings insurance, advertising, accountant’s fees and management charges.

There may also be ground rent to be paid, and if you let out premises with three or more storeys and multiple occupants (five or more); there are licences to pay for as well as probable alterations to the property to meet safety requirements. Do remember to allow for periods when the property is unoccupied. Unfortunately mortgage payments don’t stop when the rental income does!

As far as the tax office is concerned you have a responsibility to inform them that you are now a landlord. There is a fine of £100 if you fail to do so within 3 months. Income from letting will be taxed under Schedule A and, depending on your total income, you will pay between 22 and 40 per cent. Outgoings, with the exception of the part of a mortgage that goes towards repaying the principal, are allowable and can be offset against the income.

Initial costs of the property purchase are likely to be high and because of this it is advisable to think of your venture as a long-term investment of, say, 10 years or more.

Should you decide to sell the property, Capital Gains Tax (CGT) will be charged, assuming the value has risen.  The CGT rate is in step with income tax so the same rate will apply. There is an annual CGT allowance of £8,800 per person (2006/7). Couples who are joint owners can claim one allowance each . There is a little more help when it comes to taper relief. After the first two years there is a taper relief discount of 5% each year, up to year 10. This is to allow for inflation factors.

The tenant is solely responsible for council tax payments. There is no council tax charge for the first six months for an empty property, but after that you have to pay a discounted rate. For unoccupied furnished accommodation you will also get a discount.

There are some good deals coming through on the mortgage front, with some interesting  fixed rate ones and the number of specialist buy-to-let lenders has increased in recent years. Their terms vary and it’s important to comb through the small print a make sure you understand everything fully.

The easy way to do this is by logging on to the internet and searching for a mortgage broker – here you’ll find all the advice you need. They have access to all the mortgages on offer and are totally up-to-date. They will do the searching for you and come up the right mortgage for your needs, at the best possible price.