First time investing in Buy to Let
With more and more people choosing to live on their own, the demand for smaller homes has soared - with the inevitable consequence of pushing up prices. As ever increasing numbers of lone buyers find themselves struggling to afford to buy, this has opened up new opportunities for Buy to Let investors looking to accommodate these individuals.
However, whilst Buying to Let has become a popular form of investment, it should only be entered into with eyes fully open to the risks as well as the potential rewards. It's vital to buy at the right time, in the right place and at the right price. That means taking the time to research the market fully before you step in.
Remember, the Financial Services Authority (FSA) doesn't regulate mortgages on properties that are bought to rent out.
It is essential to deal with a lender who steadfastly applies these same disciplines to their unregulated Buy to Let mortgages as they do to their regulated ones. In other words, a lender like Giraffe.
We offer a range of different Buy to Let mortgages that are geared to help you maximise the return on your investment. The decision on which one is right for you will obviously depend on your personal circumstances, but to qualify for any of them you must fulfill the following criteria:
To get a Giraffe Buy to Let mortgage you must…
- be 21 or over
- have had a residential mortgage for at least 12 months in the past 5 years, or own a property outright
- be resident in the UK
- earn at least £15,000 a year if you want to borrow more than 75% of the purchase price
Assuming you meet the above criteria, you could be on you way to becoming property investor.
Essential research
For your first Buy to Let investment, you may feel more comfortable by starting with a property local to you. This way you'll know the area, the kind of people who live (or want to live) there and you can easily check out your competition. A smart investor will want to know what kind of properties let quickly and how much rent they command. Reading the local lettings ads and trawling round the estate agents is often a good way to get a sense of what the current rental market is like and whether there are any issues with under or over supply.
Try to spot the up and coming areas (usually indicated by new eating places, clubs and smarter cars) then look to buy in the area next door where it will be cheaper, but still close enough to trade off the benefits.
Remember, Buying to Let is a business venture; you are not going to live in the place yourself. Letting agents will confirm rents are based on supply and demand - not trendy interior decor or fancy bathrooms (unless you're starting at the expensive top end). So, when you view and assess potential properties concentrate on the basics that most renters are more likely to be interested in: does the heating work? Is the decor acceptable? Is the bathroom clean and modern? At every stage, a professional will use their head, not their heart.
Arranging finance
It's the key question. How much can you borrow?
Unlike a Standard Residential mortgage, the amount you can borrow with a Buy to Let mortgage is based upon the expected rental income rather than your personal one. At Giraffe, we'll lend you up to 85% of the purchase price (or the valuation price, if it's lower). So you will need to put down at least 15% deposit.
The rental income must be on an unfurnished basis and be equal to, or greater than:
- 100% of your monthly interest repayments (if the mortgage you have chosen is Fixed or Capped for 3 years or more).
OR
- 118% of your monthly interest repayments (if you have chosen any other mortgage type).
Big ambitions? If you'd like to build a property portfolio, we can give you mortgages for up to 5 Buy to Let properties on top of the mortgage on your own home.
Buy to Let calculators
To help simplify the maths of Buy to Let, we've created 2 special Buy to Let calculators. Whichever one you choose will depend on your personal starting point.
You can find these calculators on our home page, or by clicking here.
Acceptable properties
Not all properties can be bought with a Giraffe Buy to Let mortgage. Like most lenders, we insist on certain factors being met before a property will be considered acceptable.
The property must be…
- worth more than £40,000
- ready to let in its current state, or after minimal improvements such as redecorating
It can't be…
- a studio flat
- an ex Local Authority flat valued at less than £90,000. (we do accept ex Local Authority houses).
- an office block conversion
- a speculatively converted Local Authority block.
In the case of flats in mixed developments (e.g. above a shop) we can only lend up to 75% of the purchase price. We do not accept studio flats.
We do not accept flats or maisonettes built within the last 12 months, or being purchased for the first time since conversion. Houses built within the last 12 months or being purchased for the first time since conversion are acceptable up to 75% Loan to Value.
In the case of multiple investments you can have a maximum of two properties per apartment block or full postcode area.
Your tenants
In order to protect your investment and our security, we insist on certain conditions with regard to the tenants you let to, and the legal status between you and them.
- Your tenants must be standard residential tenants (we don't accept holiday lets, multiple occupation tenancies or your relatives). Department for Work and Pension tenants are acceptable. Student lets are also acceptable (maximum 4 tenants).
- There must be an Assured Shorthold Tenancy in place (or Short Assured Tenancy in Scotland). This is an agreement which basically gives the landlord the right to have the property back at the end of the term of the tenancy.
Managing your investment
Once you've found your property, you need to establish who is going to manage it. Are you going to find tenants yourself or pay a local agent to do it for you? Are you going to collect the rent, or let the agent do it?
Unless you're planning on being a full time landlord, it is likely that you'll use a letting agent to find suitable tenants and collect your rent. The agent will also draw up the relevant documentation. Agents' fees are usually taken out of the monthly rent and they normally charge around 10%-15%, depending on the level of responsibility you give them.
Landlord responsibilities
You own the house, so you're responsible for its maintenance but your daily tasks as landlord will depend on what you agree with your letting agents. Discuss your responsibilities with the agent you choose.
Preparing for the bad times as well as good
If you're new to the rental market, it's easy to get carried away and assume you'll always have tenants and the money will always roll in. The reality for many new landlords is that this often isn't the case. You MUST bear in mind that there will be times when you have no tenants in the house - but you will still have to keep paying the mortgage. This is in addition to the usual costs of keeping the property in good condition. A flexible mortgage could help here as, it could allow you to overpay in good times in order to underpay or take a payment holiday in leaner ones.
As with any business venture, it is essential that you have a fallback or contingency plan should events not go as well as you had hoped.
Ask yourself these important questions:
- Is the property in an area that would be attractive to tenants?
- What if I didn't have tenants for three months? Could I still pay the mortgage?
- Am I relying on property prices going up? What if they stay the same or even go down?
- Would I be able to sell the property easily if I had to?
Consider your ultimate goal
Buying property to let is an investment, so you need to be clear what you're investing for. Are you looking for a quick return? Or is it a longer-term means of generating extra monthly income? Are you looking for one or two properties to prop up your pension? Or do you want to build a bigger portfolio that could mean churning properties and mortgaging more quickly as you buy and sell in the market?
Remember this is business, not home-buying. And business people always look at the big picture. If and when you look to sell the property in the future, will you have got - or will you get - the return on investment you expected?
Applying made easy
Conducted all your research? Done all your maths? Convinced Buying to Let is still the right thing for you to do? It's time to grab a Giraffe before it's gone.
Good news. As Giraffe is a direct mortgage provider you can get everything you need to complete your application here online - from an Illustration to a full application. Simply log into our secure application system.
Or you can speak to one of our mortgage specialists who will be able to talk you through the next steps. Just call 0845 113 2288*.