Investing in property has always been popular in the UK. We have all read the stories of people who have bought buildings and rented them out for a profit, which enables them to buy another and so on, meaning they have soon amassed a portfolio of rented properties.
In order to fund the initial and even subsequent property purchases, some people would turn to a mortgage professional for advice, as well as to see if they can obtain a buy-to-let mortgage to enable them to secure the purchase.
It is important that your customers understand the implications of a buy-to-let mortgage, and that they have considered the advantages and disadvantages before making any final decision:
This arrangement can allow for rental payments to generate an income. In order for a buy-to-let property to be profitable, the owner often receives a monthly rent payment that is greater than the mortgage amount. It is important for the customer to get the best rate to maximise their return.
Meanwhile, some costs can be offset against tax. People who own buy-to-let properties need to declare the income it generates on an annual tax return. Certain costs, such as letting agent fees and bills, if the owner pays them, can be offset against the tax potentially due.
The scheme is also a popular source of long-term investment. Property is generally seen as a safe investment, even in the face of recent house price fluctuations. Depending on the area, some properties have seen significant growth with no work needed by the owner.
A disadvantage is that monthly payments must be made in full, regardless of the rent received. When someone obtains a mortgage for a buy-to-let property, their intention is that it will be continually rented to earn them enough to pay the loan off while keeping some profit. However, it is important that they are able to maintain the payments in the event that there were no tenants, or the rent received was less than the required monthly amount. This would form part of the affordability assessment.
The property must also be maintained and managed. Buy-to-let building owners have a responsibility to ensure that the property is well maintained, and any problems that arise for the tenant relating to the building are resolved. They will also need to find a suitable tenant to rent the property and provide the income required.
Some people may turn to the services of a letting agent, who will complete the above for a monthly cost, which of course would impact on any profit being made.