Rising prices for houses in the UK have made buy to let a very popular way for landlord’s to invest in property. The benefits include an equable income from rentals, but more importantly, an amassment of wealth if house prices go up.
There are many factors that are making buy to let investing grow in popularity. One such factor is that the main risk only involves a well thought out speculation. The landlord takes a loan to buy property in hopes that the rental income will exceed the cost of the loan, or its value rises so much that he can sell the house for a higher price. If the landlord gets the outcome he had hoped for, he will have benefited from the lending bank’s money and never risked a penny of his own. In the worst case scenario, the bank will foreclose on the property if the borrower defaults and make their money back by selling the house.
Lenders have different ways of deciding how much money buy to let investors can borrow. Normally the rental has to cover 120% to 150% of the mortgage repayments. This is only to give lead-way for other factors suck as rental maintenance and void periods.
Some lenders they lend the money based on an individual’s existing loans by applying the deduction rule. This is a fancy term meaning they will lend a maximum of 3 and a half percent times the borrower’s income, minus an amount for annual mortgage payments worked out at pre-set levels of interest.
Some lenders simply offer three times the borrowers salary and half of the rental income.
Interest rates on but to let are really close to residential mortgage rates but tend to run just a little bit higher. The slightly higher rate is due to the general perception that buy to let mortgages carry a higher risk than normal mortgages.
There are also tax advantages available to buy to let investors. Renter’s income is taxed the same way as normal income but they can deduct certain costs from the taxable income. These deductions include any interest paid to the lender, as well as maintenance costs on the rental property.
Some believe that the growing popularity of this type of investment is slowly forming a threat to the banking system in the UK. Nevertheless, buy to let investments continue to grow in popularity in the UK because house prices continue to increase.
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