Landlords made significant returns with low rates on buy-to-let mortgages that increased property values and high rents.
But now, landlords are questioning if it is worth investing in buy-to-let properties due to recent tax changes and new laws. Read on to know how you can invest in buy-to-let properties and if you can make returns from them.
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Know what is a buy-to-let mortgage
Buy-to-let mortgages UK are opted for by people who wish to buy a property and immediately rent it out. Mortgages for buy-to-let property differ from the standard mortgage sought when the person purchasing the property intends to move in after the purchase. Buy-to-let mortgages usually come with higher interests due to higher risk factors for the lenders. Seek the advice of mortgage advisors London, to help you find the best deal
How does it work?
BTL (buy-to-let) mortgages require 20-25% of the price as the minimum deposit. But with larger deposits, you stand a better chance to secure a better rate of interest. Few BTL mortgages are given only to investors and landlords who are ready to deposit a minimum of 40% of the deposit or even higher. Additional costs while buying BTL properties are the arrangement charges that can be up to 3.5% of the property price. With this , adds the stamp duty of 3% for homes above £40,000.
BTL mortgages are usually interest-only mortgages where the landlord pays only the interest during the mortgage period and pays in full at the end. They typically do this by selling the property.
Who can apply for a buy-to-let mortgage?
For BTL mortgage eligibility, there are certain criteria to be fulfilled. For example, applicants must have a minimum annual salary of £25,000 and should own a home or have an existing mortgage for a home. Mortgage brokers can help you find the best mortgages that are beneficial.
How to make returns from buy-to-let?
There are two ways to make a profit from your BTL properties. One of the best ways is through rental yields, where you rent the property and earn from the rent after maintenance charges and other added costs.
The second way to earn from a BTL property is through capital growth. Here you can sell your property for a higher amount and be profited. With the help of a mortgage broker, you will buy a suitable property with a minimum deposit.
Is buy-to-let still worth it?
BTL mortgages can be good investments with returns in the long run. The Office for National Statistics says that private tenants in the UK increased 63% between 2007 and 2017, and the figure is still growing with population increase. Capital growth is also a possibility with UK housing prices continuing to rise.
To be able to benefit from returns, thorough planning has to be in place. You will figure ways to cover costs to be able to receive good returns. And the costs for owning a TL property has increased with the changing laws. Maintenance costs like boiler replacement, which can cost up to £4,000 should also be landlords. The 10% tax relief for maintenance costs has now been scrapped, leading to higher taxes to be paid.
Also, from April 2020, tax relief on interest from buy-to-let mortgages has come to 20%, and it increases the tax for the landlords.
Apart from tax laws, as a landlord, you should also be ready to tackle the loss of rent that can heavily impact your finances. One can choose from insurance packages to be shielded from situations like these.
Hence, with all these pointers in mind and a clear financial plan ahead, the buy-to-properties in the UK can benefit landlords by giving good returns in the long run.
Read more: How to Get Yourself Prepared for Mortgage