A buy-to-let mortgage may seem pretty appealing, but before committing to a mortgage, it’s important that you brush up on the facts. There’s plenty to consider before making a decision, such as insurance, tax, and of course, the risks of being a landlord.
What exactly is a buy-to-let mortgage? What are the advantages and disadvantages of buy-to-let mortgages? If you want to know the answers to these questions, we’ve got you covered. Keep reading to learn more about buy-to-let mortgages, including the pros and cons.
What is a Buy to Let Mortgage?
Buy-to-let is a type of mortgage designed for those planning on purchasing a property purely for the purpose of letting it out to tenants.
Landlords will use buy-to-let mortgages when purchasing a property to rent to tenants. It’s considered an investment and can be an effective way of generating a solid income.
With buy-to-let mortgages, you can also sell the property at a later date. However, there are certain legalities that should be researched thoroughly when there are tenants involved.
Being a landlord doesn’t come without responsibility – it is the responsibility of the landlord to maintain the property, and make up for costs such as property damage (or requesting that the tenants pay up). Some landlords will treat their role as a full-time job, whereas others will just let out one property on the side of their full-time job.
Most people will either buy to let to either invest in a variety of properties and use the proceeds as their main income or rent out just one or two properties to earn extra income.
The Positives of Buying to Let
There are a long list of reasons why buying to let is a good idea – but of course, it all depends on your personal circumstances. If you’re willing to put the work in, then buying to let is far more likely to pay off.
Buy-to-let mortgages can be a great (and mostly safe) way of generating an income – this is achieved by collecting the monthly payments from your tenants. If you’re looking for a Liverpool Mortgage, you’ll be glad to know that rental yield can be as high as 7% – although areas further outside the city centre tend to have a lower rental yield. This can become your primary source of income.
There is also a chance for you to generate capital growth if your property value increases – the key is knowing the best time to buy. This can be done by researching the area and noticing patterns in house prices and rental yields – or by consulting with a quality mortgage advisor.
The Downsides of Buying to Let
Many people make the mistake of thinking that buying to let is a sure-fire way to make a profit. Unfortunately, this isn’t always the case – in some instances, you may experience a loss of finances. Although buy-to-let mortgages are considered a safe investment, nothing is for certain – and being a landlord is not always easy to work.
For instance, you’ll need to keep on top of tenants – ensuring that the property is occupied and that tenants pay rent. To minimise the risk, you could choose the right insurance. At LTC Mortgages, we can find you the right protection, whether it be life insurance, income protection insurance, or critical illness cover.
Another risk that you may experience is the falling of property prices. This means that your capital will reduce – and if your mortgage is interest-only, then you will be required to pay the difference if the property sells for less than the price you purchased it for.
One of the main downsides of buy-to-let mortgages is that your tax bill will likely be much higher than with a regular mortgage, which can eat into the profits you make. You’ll need to consider extra costs such as monthly interest payments, stamp duty, general wear and tear of the property, and insurance.
It’s a big responsibility that shouldn’t be taken lightly, and you should conduct plenty of research before committing to a buy-to-let mortgage.
Liam Coker is a highly skilled mortgage and protection specialist who delivers excellent customer service. His knowledge of the mortgage industry is key to finding the correct solution for people’s specific needs.