General buy to let information:

The buy to let market in the UK
The UK buy to let mortgage market suffers highs and lows.  It is sometimes a victim of its own success with hot spots becoming saturated with buy to let properties.  However, experts are currently fairly confident about the buy to let market as the lack of first time buyers has led to a higher demand of rented accommodation. 

The housing boom, lack of faith in pensions and underperformance of the stock market has led many people in the UK to invest in buy to let.  With the amount of TV shows dedicated to property development and DIY, and books promising tips on how to become a ‘property millionaire’, buy to let has never been so popular. 

Buy to let – like any other investment – involves an element of risk which should not be ignored or understated.  However, if you go into your buy to let venture with your eyes wide open, then there is no reason why it cannot work for you. 

What are the potential pitfalls with buy to let?

1) Not enough research
Find out about the area in which you are thinking of purchasing your buy to let property.  You might think that the area doesn’t matter since you are not going to be living there yourself, but it is vital that you know whether the property is going to be easy to let.
Ask estate agents about rental demand in the area, and check out details yourself such whether the property is near a university or college, whether it is close to public transport and local amenities etc  Will the area appeal to students, young single professionals, families?  In which case, does your buy to let property fit that demand?  

2) Not having an efficient letting agent
This may sound obvious, but a good letting agent can make all the difference to the success or failure of your buy to let venture.  It’s wise to choose an agent that is registered with the Association of Residential Letting Agents (ARLA)

3) Not setting a budget for your buy to let
This cannot be stressed enough.  It’s important to make sure you calculate the size of your deposit, plus any new furnishings you may need to purchase.  The size of your deposit will determine how much you can afford to borrow.

4)  Not safeguarding against future problems
It’s easy when doing something to potentially earn money to shy away from paying anything upfront and to cut corners where possible.  With buy to let, in order for it to prove a successful venture it’s important that you do not turn a blind eye to any problems at the outset.  When the sale gets under way, make sure you protect yourself from all eventualities:

a) get a full structural survey or Homebuyers report if you’re buying an old place
b) sort out renovation work sooner rather than later
c) have tenants lined up for as soon as the work completes
d) look at health and safety requirements
e) ensure you have a tenancy agreement in place.

Buy to let Frequently Asked Questions

1)  What exactly is a buy to let mortgage?
A buy to let mortgage is one where the property mortgaged is let out to tenants.  These are sometimes called investment properties, as it is hoped that the property will produce income for the landlord.

2)  Does it matter if I let the property to a member of my family?
As a rule, buy to let properties are not regulated by the Financial Services Authority, but one exception to this is where the property is to be let to immediate family members.  Many mortgage lenders will consider applications where the tenant will be family, but make sure they are properly authorised.

3)  What will a buy to let mortgage lender look at when assessing my application?

i) Your income
Unlike with a residential mortgage, a buy to let lender will assess your mortgage application in light of the anticipated rental income that you hope to generate and not by the amount of your income. This is because if the rental income exceeds your mortgage payments then there is no reason for you to meet difficulties. 
The risk lies in the fact that you could find yourself having to deal with a period of non occupancy in your buy to let property, or if your tenant decides not to pay the rent.  For this reason, mortgage lenders have criteria which has to be filled in order to lend on a buy to let basis.  They will, for example, often insist that you have a minimum income (typically £15-£20,000 per annum), and some insist that the rental income exceeds the mortgage interest by 25 or 40%.  In other words, if your buy to let mortgage was £100 per month, then the rental income would need to be £125-£140 per per month.  

ii) The buy to let property
Fundamentally, mortgage lenders want to lend on properties that are easy to let. So they try to regulate the ‘quality’ of the property in a number of ways.  

• They often ask for a minimum property value of £30,000 - £40,000 
• They generally will not consider studio flats/bedsits (although there are lenders that will consider them in more expensive areas such as London) 
• Flats above shops are generally fine, although you may find there is slightly different criteria: generally lenders will not lend on properties above food shops.

iii) The tenants
As a rule, the better the ‘quality’ of the tenant the more the lender likes it, as there is a higher chance that the property will be looked after and a lower risk of non payment of rent.

Please note: although the FSA does not regulate most Buy to Let mortgage advice, check that the broker concerned will treat you with the same skill, care and diligence as if they did.

Useful link:
http://www.arla.co.uk/
The Association of Residential Letting Agents (ARLA).  Information for landlords and tenants, including news, buy to let scheme, letting agent search etc