Buy to Let

Buying a property to let is increasingly popular and can be a great investment when interest rates are low and there’s uncertainty in the stock markets. We know the sale and rental values of London property inside out, so we’re more than happy to give you any advice you need – along with access to thousands of potential tenants.

We understand that for some this is a new venture and there are risks involved, so we have listed below a number of frequently asked questions, with answers and explanations to help you, the buy-to-let landlord, make informed and practical decisions.

• What is Buy-to-Let?
• Why is Buy-to-Let different?
• What are the returns from letting property?
• What difference can a Letting Agent make?
• How do I go about Buying-to-Let?
• How are Buy-to-Let mortgages arranged?
• What does a letting agent do for you?
• Are there special conditions I should know about?
• Can a Buy-to-Let investment be protected?
• How much rent should I look for?
• What costs should I take into account?
• Tax and allowances

What is Buy-to-Let?

Buy-to-Let is a type of mortgage that enables private individuals to invest in property to let without being penalised by mortgage surcharges or paying commercial rates of interest.

Why is Buy-to-Let different?

Before Buy-to-Let came into effect, lenders charged higher rates of interest for property bought to produce an income. Furthermore, rental income was not counted when assessing the borrower’s ability to meet mortgage payments.

Today, the view of many lenders and other housing professionals is that growth in private, rented properties should be encouraged. The UK market lags behind the private rental sectors of other advanced economies and the lack of choice between renting and buying is seen as bad for the UK economy.

What are the returns from letting property?

The average rental return in Britain today is around 5%-7% before taking into account any of the variable running costs or capital appreciation of property.

Since the concept of Buy-to-Let was launched by ARLA (Association of Residential Letting Agents) in 1996, capital appreciation of property has generally exceeded inflation by a significant amount. In the current market, we feel you should take a long-term view to benefit from capital appreciation, probably 7-10 years.

What difference can a Letting Agent make?

Buying a property to let is not the same as buying your own home. A Buy-to-Let mortgage lender will expect you to be advised by an ARLA member like ourselves on your selection of property.

As experienced agents, we know the local market, what type of property there is a demand for and the standard of decoration, furnishing, fixtures and fittings required.

We will also be able to select tenants who will pay their rent on time and leave the property on time and in a proper state.

Furthermore if the management of your property is put in the hands of a professional agent, this enhances your status with mortgage lenders.

How do I go about Buying-to-Let?

Always start by talking to an ARLA letting agent. We can help you find appropriate properties.

We can also advise on your property’s letting potential, the sort of rental income you could expect and what you might need to do in terms of decoration, fixtures and fittings to attract good tenants.

How are Buy-to-Let mortgages arranged?

The process is very similar to buying your own home. Buy-to-Let mortgages are subject to the usual status checks. Loans can be arranged for terms of between 5 and 45 years; and for up to 80% of the value of the property.

We have a number of Independent Financial advisors (IFA’s) who will be able to advise and assist you in finding the most suitable mortgage for you and they all offer a fee-free service

What does a letting agent do for you?

As an ARLA member, we will introduce and vet prospective tenants; prepare the tenancy agreements; advise on and arrange inventory and property condition reports, action changes to utility accounts and Council Tax; collect the rent and pay the balances into your account.

As part of our property management service, we will also pay bills on your behalf and regularly inspect the property. As required, we will recommend, oversee and account for any necessary maintenance, repair and re-decoration.

Are there special conditions I should know about?

Generally, lenders will expect you to use an ARLA member to let and manage the property. They will also expect your rental agreement to be drawn up as an Assured Shorthold Tenancy or other clearly defined contract as appropriate.

Can a Buy-to-Let investment be protected?

Insurance cover is now available to protect your rental and provide for legal expenses.

How much rent should I look for?

As a general guide, the total monthly rent you receive should be between 110% and 130% of your monthly mortgage payment.

What costs should I take into account?

Your letting agent’s commission and management fees, Insurance (Building/Contents/Rental and Legal Expenses Cover), the costs of keeping the property in a marketable condition and, if a leasehold property, service charges and ground rents.

Your tenant is responsible for paying utility accounts, Council Tax, and TV licence fee etc.

Tax and allowances

Deductions against tax on the rent you receive may be claimed for the costs of maintenance, such as insurance, cleaning, gardening, agent’s commission and other reasonable management expenses. However, improvements to the property cannot be claimed.

Whilst the initial cost of furniture, fittings and fixtures is not allowable the cost of subsequent replacements may be claimed. Alternatively, a wear and tear allowance of 10% of the rent received may be deductible.