You may be thinking of purchasing a buy to let property in the search of ‘easy money’, but do not be fooled, owning buy to let properties is anything but easy and with increasing legislation and requirements it is becoming more and more challenging.
Firstly, buying a buy to let property requires quite a lot of capital. More often than not the minimum deposit for a buy to let mortgage is 25% (a couple of lenders accept smaller deposits but the interest rates are higher and the criteria is very strict). Right of the bat this is a sizeable investment which you need to find.
On top of the deposit you will require additional funds for stamp duty. For the vast majority of lenders you are required to be an owner occupier so the stamp duty will follow normal stamp duty rates and thresholds, plus additional stamp duty which is 3% of the purchase price. Therefore if you were purchasing a buy to let property for £130,000 you will have a total of £4,000 in stamp duty to pay.
You also need to ensure you have enough capital in case of an emergency. If urgent necessary repairs come up will you have the funds to ensure you can pay for these? As you are providing a home for someone in exchange for their rent you are obligated to ensure that things are fixed and repaired as efficiently and quickly as possible.
Another factor to consider financially is if you can afford for periods of rental voids. If you have periods where rent isn’t paid or if you have gaps between tenants you need to ensure you can still afford to pay the mortgage and necessary bills during these periods.
As well as the financial implications of owning a buy to let property you need to consider your legal requirements as a landlord too. You need to ensure that you are declaring all your income to HMRC for tax purposes as failure to do so can lead to large penalties and even criminal prosecution. On top of this you also have requirements to ensure your property is above an E rating on an EPC amongst various other things. You may wish to seek independent advice from a solicitor and/or a lettings agent to discuss other legal requirements and other requirements when owning a buy to let property to help you decide if it is right for you.
Please note that the above is only some of the considerations and there is much more to consider then I have noted here.
Daniel Brown BSc (Hons), Cert SMP
22nd October 2018