Dangers of UK Buy to Let Mortgages

What are the dangers of buy-to-let mortgages?

These days, investing in properties with the aim of renting them out is open to all kinds of people from various walks of life. Gone are the days when owning multiple properties was the preserve of the wealthy.

However, buy-to-let is not as simple as buying a property and then sitting back to wait for the money to come in. There are significant dangers in buy-to-let, and if you don't do your homework, you could find yourself losing money instead of earning money.

Firstly; location, location, location. It's not just a mantra you know. You can't earn any money from buy-to-let unless you can rent it out and if it is in the middle of nowhere with hardly any access to local amenities then you could find trouble letting it. You should buy somewhere close to a large city and within walking distance of local amenities and public transport.

Even if you are in a good area, you need to find out about the demand for rental properties and the demographics of the area your looking in. Buying a one bedroom flat where prospective tenants are predominantly young families will not bring home the bacon. The Association of Residential letting Agents (ARLA) will offer you help and advice on rent levels and regulations.

You should also understand that there are quite significant initial costs after investing in your property. You have to find a deposit likely to be around 20% of the cost of the home. You'll need to pay for valuation, solicitors' fees, surveys, and stamp duty.

Not only that but there are numerous home buying expenses that you need to think about. You may have to decorate the home, buy furniture and appliances. Then you have to get tenants into the flat, that isn't free.

One of the most potent dangers of buy-to-let is that the landlord doesn't think about what they can really afford to invest. To lend on a property, many lenders will want your rental income to be 125% of the monthly mortgage payment or more, so do your sums.

Then there is the hassle of managing the property. Do you want to be woken at 4am to fix a burst water pipe? If not, an estate agent will take care of this, find you tenants, collect rent for you and arrange the tenancy agreements and the inventory for you. They will charge you 15% of your income, but it could be worth it.

You should keep some spare money aside as you could find yourself between tenants, not receiving rental income, lose your job or have the tenants from hell that burn your front door down. You are responsible for all of this, and your lender will still require your monthly payments whatever happens.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

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