These types of mortgages are designed for property investors and private landlords, who do not intend to live in the purchased property.
This type of investment does not come without risk because the rental income may not be of a regular nature and property prices can go down as well as up.
Of course the up side to this is that letting could provide a good return both in extra income as well as the property growing in value over the long term
You might need to decide whether your goal is to simply make a profit on the rental income to supplement your own earnings or the profit you may make on the sale of the property in the future. This decision may affect the type of property you buy or the area in which it might be situated.
If you can’t buy the property outright you will need to consider a “Buy to Let” mortgage which is different from buying a residential mortgage. The main difference is that the Lender will normally require a larger deposit of say 20% – 30%. In addition the rental income would need to fit a particular calculation that can be different with each Lender. On top of that you need to be able to prove that you earn between £20,000 and £30,000 depending on the Lender.
When choosing a letting agent to act on your behalf, it is wise to choose one that is a member of The Association of Residential Letting Agents (ARLA). All members of the ARLA participate are in a bonding scheme to protect both rental income and tenants’ deposits.
Other potential costs which may include:
The upkeep of the property itself, such as repairs to appliances, and redecoration that may be required before a property can be let to new tenants.
Letting Agent fees
This might typically be around 10% of the monthly rental income for managing tenants. If you need full management of the property, it is not unusual for these costs to be around 15% of monthly rent.
Ground Rent/Service Charges
These costs only apply to leasehold properties.
Legal insurance is intended to cover costs involved in pursuing eviction.
Buildings /Contents Insurance
A policy that specifically covers Buy to Let properties to protect building and any furnishings provided as part of the rental agreement will also need to be insured.
If the property is let as furnished then you’ll need to cover the cost of any additional items not already included.
Appliance Safety and Inspection
Certain appliances will need to be regularly inspected and serviced to ensure they are safe to use and compliant with current regulations. For example: Gas Boilers and Gas Fires.