Buying an Investment Property: Your Questions Answered

If you’re looking for a great long-term investment that gives you a regular income AND continuously increases in value, rental property is a winner. It can be complex though, and a buy-to-let (BTL) mortgage is very different from a standard residential mortgage.

At Windsor Hill, we specialise in some of the more complex buy-to-let mortgages such as limited company, House in multiple occupation and portfolio, so we know all the ins and outs to help make this a thriving business venture. If you’re thinking about becoming a landlord, take a look at our answers to these top questions from buyers:

Buying an Investment Property Windsor

Is this a good time to become a landlord?

As we all return to the “real world” from lockdown and remote working, demand for rentals is on the rise – particularly in larger cities – and while property prices are higher, rental prices are increasing too.

If you are able to buy a rental property, it can provide great returns in the form of regular income, and of course you would also benefit from increases in property values over time. Rental yield in the UK, is dependent on the area you’re in.

Buying to let now can also prepare you for a more comfortable retirement or “empty nest” phase once the kids have moved out. A BTL mortgage can be converted to a standard residential mortgage if you do decide to live there yourself, and you’ll have a property ready and waiting for you. Something to think about!

 

What’s the difference between a BTL mortgage and other mortgages?

As this is almost always a second property or one of many, and it comes with different costs and requirements.

• The amount you can borrow on a standard mortgage is primarily linked to your income, but a BTL mortgage is also based on the income you can earn from the property.
• Deposits are higher – at least 15% and sometimes as much as 25%, whereas a residential mortgage, is as little as 5%.
• You’ll also usually pay higher interest rates on a buy-to-rent mortgage

As with any investment though, higher risks and costs mean higher potential returns. To optimise those returns, you need the BTL mortgage deal that’s tailored to you.

 

Do I really want to be a landlord?

This question needs sub-sections: What type of landlord would you be? Are you worried about the risks involved, such as bad tenants? When you buy a rental property you’re starting your own business, and as with any business, you’ll need to do things like management and marketing – or hire an agent to do that for you. We go into more detail here in our post about being a landlord.

Buying an Investment Property Windsor

 

Should I set up a limited company?

A BTL mortgage as a limited company can cut costs. As The Times explained in a recent article, “If the property is owned by a company, all costs, including mortgage interest payments, can be deducted as business expenses,” but this doesn’t mean it will be cheaper for everyone.

Your finances and situation will determine whether a limited company does in fact save you money, so once again it’s important to speak to a mortgage advisor who will work out the bespoke plan for you.

 

Is there a template to plan my buy-to-let budget?

We have a very handy calculator that takes the key factors into account – try it out to get a good sense of your mortgage in just a few minutes!

The world is filled with variables though, so for a comprehensive budget that’s tailored to your specific requirements and circumstances, a skilled buy-to-let mortgage advisor can help ensure that you have absolutely everything covered, and pick up on small details that can have a big impact.

An example of details that don’t fit the mould: when working out profitability, most formulas assume rental income every month, but there will often be a gap of 1 or 2 months in between tenants. In the long term, this isn’t a major loss (and trust us, it’s worth it if that gap means finding the right tenant!) but it’s important to factor in when planning your budget.

Other expenses to consider include maintenance, insurance, and mortgage fees. Stamp Duty surcharge (3% on residential buy-to-let), interest on the mortgage – including possible increases in interest rates – and managing agent fees.

To have a mortgage approved, we can help you calculate profitability based on the property price, expenses, projected rental income, and any other details you need to take into account.

Buying an Investment Property Windsor

 

Do I need a managing agent?

The age-old question of self-management or hiring a managing agent doesn’t have a ‘one size fits all answer. Just as your BTL mortgage is tailored to you personally, your management solution should be too.

Protecting your buy-to-let investment is a top priority, so having a professional on board does have a number of benefits which ultimately, you need to weigh up against the cost of management fees.

A good managing agent will ensure that:
• All maintenance is carried out quickly and effectively
• Tenant correspondence is handled efficiently
• Tenants are screened before signing
• Late rental payments are followed up on quickly and effectively
• Any issues (with the property or with the tenant) are handled without causing you any headaches, but you are also kept fully informed of what’s happening with your property

Be sure to use a reputable managing agent, and ask about their tenant screening process, procedures for handling things like emergency maintenance, e.g. for leaks or broken boilers, or tenants damaging the property.

Self-managing your BTL property will save on management fees, which can be significant, but remember that it will take up a lot of your time and energy. Even the best tenants still need help and attention.

You’ll also need to familiarise yourself with the relevant laws – important for everyone considering a buy-to-let, but more so if you have to handle the legalities on your own.

Ultimately, this is up to you.

 

Is buy-to-let a good option for retirement income?

This appeals to many people because if it’s done right, it can turn part of a pension fund into much larger amounts of regular income. Of course, taking money out of a pension fund to do this is a risk. We have financial advisor experts who we will be able to put you in contact with to help advise you on your options.

 

Can I get a buy-to-let mortgage based on rental income only?

You can indeed! We (and any other mortgage specialist) would need to consider many other aspects of your finances, and you will need sufficient backup funding to cover glitches such as non-payment of rent or gaps in tenancy, but it is possible.

 

What if I’m a first-time buyer?

Starting out on the property ladder with a rental investment is unusual, but it can be done. Your existing properties and mortgage(s) are usually a key factor when applying for a buy-to-let mortgage, but there are other considerations and if your income, funding for the deposit, and various other requirements are met, this could be a viable option.

Buying an Investment Property

With every choice, there are downsides and negatives that can come with buying a rental property. You need to consider your options fully and talking through them with experts can help you weigh up both the positives as well as the negatives.

Whatever your situation, a buy-to-let mortgage advisor can help you successfully navigate the process and make the most of your investment. Get in touch and book a free initial appointment and book a free initial appointment to talk about your bespoke BTL mortgage.

 

 

Mortgage expert Windsor

 

Published 13th April 2022