Understanding Buy To Let

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Your property may be repossessed if you do not keep up repayments on your mortgage.

Some buy to let mortgages are not regulated by the Financial Conduct Authority

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The Buy to Let strategy allows onward movers to convert their old home into an investment property instead of selling it.  This can be an interesting option.  Like all investment decisions, however, it does need to be assessed carefully.

The basics of let to buy

There are essentially two ways you can approach let to buy.  One way is to remortgage your existing property on a buy-to-let mortgage then take out a residential mortgage on your new home.  You would then move out and let out your current home.  The other way is just to buy your new home and then convert your existing home into an investment property.

Either way, you are going to need to be able to afford the costs of buying and running two properties until tenants move into one of them.  You’re also going to need to be able to cope with paying the mortgages on both properties even during void periods.

The advantage of the first approach is that it allows you to tap into the equity in your existing property to finance the purchase of your new one.  The advantage of the second approach is that it can give you more breathing space to move at your own pace.  You can still tap into the equity from your old property if you wish.  You’ll just do so at a later date.

Remember, if you are planning on using equity from your current home to fund your deposit, you will need to have your let-to-buy mortgage approved before you can finalize your new residential mortgage.  This definitely requires organization and it’s advisable to make as early a start as you can.  You might also want to use a mortgage broker to guide you through the paperwork.

Let to buy vs buy to let

With let to buy, you already own a property.  This saves you the hunt for somewhere to buy as an investment property.  It also means that you’re not competing against other buyers.  In fact, you may be able to tap into the equity in the property to fund a future purchase.

With buy to let, however, you have many more options.  You can choose to invest in your local area.  Alternatively, you can choose to invest in a completely different part of the UK or even the world.  If you were thinking of moving overseas, for example, you could buy a property as an investment now and a potential home in the future.

It’s also worth noting that there are alternative ways to invest in property if you wish.  For example, you could invest in commercial property or in property-related stocks.  Both of these options can get you exposure to the property market without the responsibility of being an actual landlord to a real tenant.

Is being a residential landlord for you?

Being a landlord, especially a residential landlord, requires more than just the ability to work out if a property can generate a suitable return.  It’s also about managing tenants.  Part of this involves complying with the law.  You can designate management tasks to a lettings agent.  You cannot, however, delegate your legal accountability.

In other words, if you own the contract with your tenants then they have a claim against you, not the lettings agent.  This means that it’s advisable to choose your lettings agent with care and to check in with them regularly.

It’s also advisable to make sure that your contract with your lettings agent means that they can be held liable for any errors they make.  In other words, if your tenants sue you, you can sue your lettings agent.  Keep in mind, however, that these guarantees are only as good as the money behind them.  It’s therefore advisable to check your lettings agent’s insurance.

For advice on buy to let, please contact us

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage

The FCA does not regulate some forms of buy to let mortgages.

 

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