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Why Buy to Let

In recent years, due to limited investment performance in various UK sectors and rising house prices, it has become popular to buy property as a form of investment.

Whilst buying and renting our property can be a good way of providing regular income, combined with the potential to develop a healthy level of equity over time on the property, it can be important to consider the amount of responsibilities, costs and legal requirements involved.

Buy to let mortgages are not regulated by the Financial Services Authority.

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Choose a Suitable Property

The most desirable of factor in buying a property to let is that there is a continuous tenancy. If there are no tenants, then you, the landlord, will have to pay the mortgage and buildings insurance. It is important to consider that you are able to afford this before taking a buy to let mortgage.

Location is an important factor in determining whether your property will be considered desirable by potential tenants.

The safest area to buy in is an area that you are familiar with. You have established knowledge of various considerations such as public transport, local facilities such as hospitals and employment prospects. Buying in your local area also allows you to keep a close watch on your investment property without inconveniencing the tenant. Whilst in some areas it is desirable to live as remotely as possible, most tenants would look for facilities such as Parking - Most people drive, make sure there is space to park.  Security does the property have an alarm? Is it is a good well lit area? Leisure where is the property in relation to pubs, restaurants and sports facilities? Transport links Are major roads accessible? Schools & Education If you wish to rent to families then proximity of schools may be a primary concern.

All these points can make or break your property, and indeed a property offering all these facilities will be more marketable.

It is vitally important to have your property let consistently, you are about to enter a financial marketplace, and your property will be in competition with other properties for your tenants. It is important to make your property as attractive to tenants as possible.

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Buy to let Legal Info

Since 1989, landlords have been able to implement an Assured Shorthold Tenancy. Many mortgage lenders will only accept this type of tenancy, as it enables them to take possession of the property quickly should the lender default on the mortgage.

A shorthold tenancy provides the tenant with security of tenure for the contract period (normally 6 months), but none thereafter.  It is however possible for the tenant to request another tenancy after this period expires.

If you are letting a property for the first time, it is advisable that you create an Assured Shorthold Tenancy Agreement. Take advice over the terms of the tenancy, from a local letting agent or solicitor that specialises in property. You could also contact and become a member of the National Landlords Association www.landlords.org.uk or the Residential Landlords Association www.rla.org.uk

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Letting your Property

If you wish to let your own mortgaged home, you will need to obtain the consent of your mortgage lender to let. If you let the property without consent you will be in breach of contract (look in your mortgage deed for a clause prohibiting letting without consent of mortgage lender) and the lender could take action against you.

If your mortgage lender is unwilling to consent to your application then you could remortgage to an alternative lender on a buy to let basis.

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Insurance

It is also necessary to obtain the consent of your building insurers to let the property. If this is not available then you should switch to another insurer.. Please contact us at Rainbow Mortgage Services for further details.

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Taxation

The current rules regarding taxation are complex and liable to change and you should seek professional advice on this aspect from the HM Revenue & Customs or with a professional accountant to verify the position with regards your own tax situation. The information below is a brief description of the current taxation situation with regard to buy to let property, it does not constitute advice and Rainbow Mortgage Services cannot be held responsible for any action taken as a result of the content.

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Single or Joint Ownership

If you put a property into joint ownership then the tax liability is shared. There are increased tax benefits if one of the partners is a non taxpayer.

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Income Tax

You will have to pay income tax on the net profits you make from the rental income at your highest rate of income tax. If you are currently a higher rate income tax payer then the profits you make from letting will be taxed at the higher rate.

If the property is in joint ownership then the tax liability is shared.

The regular rental income you receive is your gross income. You can deduct from this figure, various expenses to arrive at a figure for net profit. The largest of these expenses is likely to be the interest payments on your mortgage.

In determining whether an expense is allowable, the HM Revenue & Customs say it should be wholly and exclusively used for the purposes of the rental business. For example, repairs, redecoration, cleaning, gardening and insurance can be used.

You should keep consistent records of income and expenditure. You will need these in order to prepare accounts for the HM Revenue & Customs.

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Capital Gains Tax

When you come to sell your investment property the profit (or gain) you may make may be subject to capital gains tax.

Please note that capital gains tax is not payable on any profit you make from the sale of your own residential property. If a property has been used both as home and as a let property then profits are split according to the time spent in either use. There are however exemptions that may apply and it is important to take professional advice either from the HM Revenue & Customs or a qualified accountant in respect of this.

For advice and a quotation for a buy to let mortgage please call us today on 01603 305357 or email  info@rainbowmortgageservices.com.

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Commercial Mortgages

At Rainbow Mortgage Services we would look to help businesses with finding the right commercial mortgage for their circumstances, even those who have had a checkered credit history.

Commercial Mortgages are used by businesses to acquire their commercial property, the business will either trade from this property or lease it out to tenants.

Each commercial lender has their preferred sector into which they lend eg some will not lend against pubs or nursing homes whilst others welcome them with open arms!

Depending on the credit worthiness of the borrower, different lenders are likely to assist.

The commercial mortgage market is now extremely competitive and there are lenders out there who are willing to be that bit more flexible to win the business. Let us help you find them.

All lenders will usually require some basic information from you when deciding whether to offer. This may include accounts, professional valuations on the property, bank statements or CV’s of the business operators.

So whatever your business size, from sole traders to public limited companies, and whether you are purchasing or re-financing, call us today to see how we can help. Alternatively click here and we will be glad to contact you.

This web page is a guide only and is not intended as Professional Advice. Rainbow Mortgage Services recommends that you seek Independent Legal Advice on the above issues and cannot be held accountable for issues arising as a result of any of the information above.

Commercial mortgages are not regulated by the Financial Services Authority

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