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[B1146]Buy To Let Mortgages Uk

by Michael Sterios, Mic

However, as the popularity of buy-to-let property investing has increased, more and more people are using it as an investment vehicle to supplement their income and provide for their retirement. Many individuals who have joined the craze are not financially sound and have little knowledge of business or investing.

This has created a large shift in the lending criteria of buy-to-let mortgages because less financially savvy people do not usually have the means to fund a deposit on an investment property. The result is that loan-to-values have risen considerably and lenders are now more willing to approve buy-to-let mortgages to individuals with impaired credit histories. It is now common to see buy-to-let mortgages advertised with loan-to-value ratios of 90% or more.

Rental cover ratios have also dropped meaning that many investment properties are running at a cash loss even with a historically low rate of interest on their buy-to-let mortgages. If this occurs the investor must be able to pay for the loss with other funds, and it is doubtful they could if they cannot afford a deposit. The lender will want to know how the investor makes up for the shortfall when assessing the mortgage application.

While interest rates remain low and occupancy rates high, the relaxed lending criteria of buy-to-let mortgages has not yet resulted in a major increase in defaults and repossessions. However it remains to be seen whether this will continue when the good times are over, the economy tightens, and variable interest rates on buy-to-let mortgages increase.

If lenders relax their criteria too far many people will enter the property investment arena who cannot cope with an extended period of cash flow losses. If this happens, and the repossession rate rises considerably, buy-to-let investing will lose the stigma of being a financially safe and secure investment.

Additionally, buy-to-let mortgages will suffer as lending criterion will also tighten. This may not necessarily be a negative affect however, as it is doubtful that many financially unsound individuals who are currently being issued buy-to-let mortgages should be in the first place. A tightening of lending criteria on buy-to-let mortgages may realign the property investment market to a more acceptable situation.

Investing in property is a heavy commitment and should be viewed over the long term. By continually relaxing lending criteria mortgage lenders have effectively lowered the bar regarding who can enter the buy-to-let market. Perhaps it will be a good thing if lending criteria tightens back to the position it was in a decade ago when property investors needed cash savings to fund deposits which filtered out inexperienced investors who probably shouldn't enter the market to begin with.

Care should be taken before entering the property investment arena and punters should research both the property and buy-to-let mortgage markets carefully before taking the plunge. If in doubt - contact a mortgage broker for specialist advice.

The government predicts an increase of more than 2 million UK households over the next 10 years, due mainly to an increase in EU immigrants and a trend of smaller households. This obviously leaves a good opportunity for would be buy to let landlords, especially with the better buy to let rates we are currently experiencing and the extra tenants wanting accommodation.

So, what are the requirements of buying to let? Well, the main requirement of a buy to let mortgage is that the rent value of the property can cover costs of purchasing and maintaining the household. This can include mortgage payments, letting agency fees, building maintenance, building insurance, advertising, accountancy fees, management charges and any other associated costs. For example, licenses will be required for houses with more than 3 stories and more than 5 occupants. In fact, a general requirement is that rent covers 130% of the mortgage payments.

For example, a •£100,000 mortgage will require potential rent of •£520 per month. This is calculated from an •£80,000 mortgage (after a •£20,000 deposit payment) with an assumed rate of 6%. This example would command mortgage payments of •£400 per month, so add your 30% to this and you come to the previously stated •£520 rent. This appears to be a fair assessment when you consider the possible periods of time without tenants on top of all the previously mentioned house costs.

Fortunately for you, Council Tax is the responsibility of the tenants once they are occupying the house. However, you will be responsible for a percentage of the area rate if the house is unoccupied for more than 6 months. This will be a smaller percentage if the house is unfurnished.

Once paying tenants are in place, you will need to inform HM Customs and Excise of your new source of income. Expect a fine of •£100 if you've not spoken to them within a month. Once you are making money from the house then taxes of 22 to 40% will be charged on any profit. Remember this is profit and not rent received so be sure to subtract mortgage payments that don't cover the part paying the principle (this does incur tax unfortunately), and other related outgoings from this amount.

So, with all this information at hand you have decided to go ahead and purchase your buy to let household. The next question is where to buy this house. Obviously, if you want to manage repairs and any other issues with the house yourself, it makes sense to purchase close to your home town. However, if you are using an agent then this isn't so important and you can buy in one of the more profitable areas.

According to UCB home loans (these are the buy to let division of the Nationwide building society), the better performing areas for property investment are Colchester, Rugby, Peterborough, Swansea, Belfast and Glasgow. Also worth noting is that East London, having been less desirable of late, is now making a comeback due to the current regeneration of the area (London having secured the 2012 Olympic games).

If you decide to sell the property, then capital gains tax (CGT) will be payable, assuming the value of your household has increased. You do have an annual allowance of •£8,800 (couples can both claim this amount) and Taper relief which allows for inflation. Taper relief is a discount of 5% after the 1st 2 years and continues to be applicable up to year 10.

With buy to let mortgages on the market for as little as 5% and more specialist buy to let lenders around, this really is a good time to consider this investment. I would suggest you search the internet to find yourself a good broker and get all the information to hand if you decide to go ahead.

Article Source : Pg. 40

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Both Michael Sterios & Micheal Challiner are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Michael Sterios has sinced written about articles on various topics from Internet Marketing, Adverse Credit and Home Improvement. Visit UK Mortgage Source to speak to an independent today about. Michael Sterios's top article generates over 165000 views. to your Favourites.

Micheal Challiner has sinced written about articles on various topics from Auto Insurance, Finances and Credit Cards. Mortgage homehelp provides uk .. Micheal Challiner's top article generates over 5400 views. to your Favourites.