Finding a buy-to-let mortgage is a lot easier than it used to be, as more lenders are entering the market. But the actual process of becoming a landlord/landlady isn’t quite so straightforward. Here are some tips to smooth the path.
1. Look carefully into the rental potential of the area before committing yourself to a buy-to-let mortgage. City centre areas often attract the highest rents. However, in some city centres, there may have been so much new build for the buy-to-let market that supply exceeds demand.
2. Remember too that if you buy in an area where property prices are booming, your profit on re-sale may be reduced. It’s a gamble – if you buy in a currently down-market area, it may be the next property hotspot, or the property may prove virtually unsaleable. Find out all you can about property trends.
3. If letting the property will involve a change of use – for instance, to multi-occupancy accommodation – make sure planning permission is available before committing yourself to a buy-to-let mortgage.
4. Don’t just go for the first lender you find for your buy-to-let mortgage – for instance, your existing lender. Without shopping around you can’t be sure you are getting the best deal. Shopping around can be time-consuming – finding an independent buy to let broker can simplify the process.
5. Make sure your application for a buy-to-let mortgage includes all the relevant details. Many applications come unstuck at the last minute because of undisclosed information. For example, if the developer is offering a discount and you base your application on the full price without mentioning the discount, you could be in trouble.
6. Regularly review your finance facilities. The buy-to-let mortgage deal you get may have been the best at the time, but your lender may “forget” to let you know about a new and better product they bring in three months later.
7. Consider looking for a property within easy travelling distance of where you live. Having to make regular trips of several hours to deal with problems, repairs, complaints etc. may quickly erode your enjoyment of your new venture! If it is at a distance, think about using a lettings agency. This will reduce your profits, but will enable you to relax and forget about day-to-day problems.
8. Remember that the purchase of the property is not your only expense. You will need buildings insurance and there will almost certainly be repairs, refurbishments and alterations that need doing. And don’t forget that your buy-to-let mortgage will need paying whether you have a tenant or not. You may need to think about a mortgage protection policy – consult a broker to find the right type.
9. Once you have your buy to let mortgage and your property in place, it’s tempting to grab the first tenant that comes along – the last thing you want is “down-time”. But this could be a costly mistake. Get references from an employer, and a previous landlord if applicable, and ask for a credit check. Insist on an up-front payment of a deposit (equivalent to at least a month’s rent) plus at least the first month’s rent in advance. Draw up a legally binding contract and go through all the fixtures and fittings together before the tenant moves in, so there is no argument about what condition they were in. If the tenant is unhappy about any of this, find another tenant.
10. Put utilities – gas, electricity etc. – in the tenant’s name. If they fail to pay their bills, you are less likely to be cut off, and the utility company can chase them and not you for the payment.
Getting a buy-to-let mortgage can be the start of an exciting and profitable adventure, or of a horrible nightmare. Following these tips can help you make sure it’s the former.