For all the best property advice and information on buy to let mortgages follow Property Advice Blog's in-depth guide below.

In a climate of financial change, more and more people are choosing to rent property as opposed to taking out a mortgage. Therefore if you are interested in buy to let mortgages, now could be a very good time to find tenants. As a further incentive, a buy to let property can provide a regular income from rent and could increase in value, making it a good long term investment.

In the past, those interested in the buy to let property market had to have a strong financial background to be able to buy new property. However, nowadays thanks to buy to let mortgages the market has become increasingly accessible to people from all walks of life.

How do Buy to Let Mortgages work?

The phrase Buy to Let Mortgages refers to the investment strategy of buying a residential property which is let out to make profit. When you buy a buy to let property you can use your rental income to make the monthly mortgage repayments. Your tenants pay for the mortgage until it has all been paid and you are then in full ownership of the building. After this point any rent you receive is a regular profit. Or if you prefer you could sell the property and take away a large lump sum of cash. However, be aware that if you don’t have any tenants and are not receiving rent, the mortgage will still have to be paid.

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What are the main differences between regular mortgages and buy to let mortgages?

In general there are many similarities between buy to let mortgages and regular mortgages. However, the main advantage of owning a buy to let property is that the lender will base the loan on your potential rental income as well as your salary, so you may be able to take out a bigger loan than expected. When a lender considers a loan for a buy to let property they will look at all the possible risks involved. The size of the loan is usually dependent on the expected rental income, and typically your lender will expect your monthly rental income to be around 25% higher than your monthly mortgage payments. Lenders who offer specialist buy to let mortgages often include a fixed rate of interest, although in today's market Property Advice Blog recommends you consider a tracker mortgage as interest rates are anticipated to stay low for the coming months. Please take your own independent advice.

Property Advice Blog recommends taking impartial financial property advice before signing a contract, so that you can find the most suitable mortgage for your individual circumstances. As buying to let requires planning, organisation and effort, you may also want to consider whether you have enough time and resources available in order to buy and let property successfully.

Is now a good time to let property?

There has been a well documented boom in buy to let property investment in the past few years. Recent reports suggest that many potential first time buyers are choosing to rent instead of buy until the market stabilises. Areas such as Greater London and East Anglia have seen a marked growth in rental yields over the last 12 months, as tenants are paying around 7% more than they were around a year ago. What’s more, due to the credit crunch and lenders tightening their belts, many people are choosing to rent, as they simply cannot afford to buy.

Until new home owners begin to trust in the property market once more, property investors will find that now is a great time to own a buy to let property. In this current climate it seems that buy to let mortgages are becoming increasingly popular, which means that potential landlords may be able to take advantage of the UK’s current rental boom. However the number of buy to let mortgage products available has reduced considerably during the current credit crunch and lending criteria have tightened. For those able to get finance (or if your fortunate enough to be a cash buyer) then Property Advice Blog consider this to be the ideal time to pick up rental properties at bargain prices. If buy to let mortgages look attractive to you, remember there are many risks associated with this method of investment.

Many people invest unwisely by choosing bad locations or unsuitable property. Owning a buy to let property is not a sure fire way to financial success without careful deliberation and sound property advice.

For those who have no previous knowledge or experience of the buy to let property sector we suggest you read on to find out more about the pros and cons of buying to let property. By using this general guide in conjunction with more expert advice from financial and property advisors, you’ll be able to make an educated decision about this promising market.

Running Your Buy to Let Business

Since the 1988 Housing Act there has been a growth in buy to let property ownership due to increased control for landlords. The market has also grown in appeal thanks to attractive interest rates and loans aimed at but to let property buyers. An important aspect of buy to let mortgages, which differentiate them from regular mortgages is that the landlord is effectively in charge of a business. In this sense landlords should research the market, find tenants and think about the building’s renting potential before signing a contract.

Research the buy to let property market

You would never open a shop without thinking about its location. In the same way when you buy a property to let you need to consider whether the area is attractive enough for future tenants. Whether you research the market yourself or enlist the help of a specialist letting agent, you will need to investigate the demand and supply of buy to let property in your chosen area. This can be done by talking to estate agents and the local authority as well as browsing through papers and the internet.

Choosing a Property you Can Afford

Before you choose a buy to let property mortgage, take some sound property advice from an independent adviser or mortgage intermediary, in order to help you consolidate your ideas.

Questions to consider before you make an investmen:

• How much profit do you expect to make from this property? Is your forecast realistic?
• Do you have enough funds to invest and maintain a property?
• Do you have sufficient savings for any problems or difficulties?
• Have you taken specialist property advice on tax related earnings from rent?

Clearly the size of the mortgage you can afford will be directly related to the rent that is achievable for that type of property in the location you have chosen (do your homework thoroughly!) so that the rent covers the interest payments on the mortgage. Needless to say you also need to remember that, as with any investment, in considering how much to spend on the property you should always keep in mind that as well the value increasing your property can also fall in value.

If you structure your finances correctly though and don't over stretch your budget by allowing for contingencies such as void periods (when the property is not rented out), maintenance costs and management costs, then you have the foundations for a solid long term buy to let business.

Your responsibilities

Once you've made your decisions and chosen your buy to let property then you need to consider whose going to manage the property for you. You can either use a managing agent or manage the property yourself. If you're going to go ahead and manage the property yourself then do remember your legal responsibilities and that you'll be responsible for:

• Finding tenants
• Checking tenants’ references
• Collecting the rent and maintaining the property
• Gas Safety Certificate
• Energy Performance  Certificate
• Landlords Insurance
• Placing any deposit cash in an approved scheme such as the Deposit Protection Scheme
• And dealing with any problems!

Choosing and managing your property

Questions to consider before you make an investment

• How much profit do you expect to make from this property? Is your forecast realistic?
• Do you have enough funds to invest and maintain a property?
• Do you have sufficient savings for any problems or difficulties?
• Have you taken specialist property advice on tax related earnings from rent?

Questions to consider before you choose your property

• How long do you plan to rent out your property for?
• Have you spoken to an experienced letting agent about the costs?
• Have you considered the type of tenant you could attract?
• What type of rental income is realistic for the area?
• What type of tenants would be attracted to the area?
• Have you looked into the implications of an Assured Shorthold Tenancy?
• Has your solicitor made you aware of the legal implications of renting?
• How much will you have to pay out for repairs, management etc…?
• Have you thought about how to pay the rent if you can’t find tenants?
• Are you aware of safety regulations?
• What would you do if your tenants damaged property?
• Would you consider using a letting agent and would you be able to afford their fee?
• Will your net amount of rent leave you enough profit after paying for the running costs?
• Are you aware that the property could decrease in value?

Who will manage your chosen property?

If you decide to manage your property yourself, you will need to have the time and energy to commit to your new ‘business’. Some of your new responsibilities may include:

• Advertising for tenants
• Checking references
• Organising payment by either collecting the rent or through the bank
• Dealing with the general maintenance of the building 
• Repairing and replacing fabrics and furnishings 
• Dealing with problems such as tenants leaving at short notice, rent arrears, damage etc…

Choosing The Right Mortgage

When it comes to Buy to Let mortgages there are two main types you will need to choose between - a repayment mortgage or an interest-only loan.

With an interest only mortgage, lenders are often looking for a suitable investment product, while with a repayment mortgage, some lenders may ask for life insurance in conjunction with your loan. Other options include fixed rate and variable rate mortgages. A fixed rate loan should provide you with some certainty about your monthly repayments whilst variable mortgage rates can change from month to month.

What are the additional costs?

In addition to monthly mortgage repayments you could also have to pay for:

• Building insurance
• Content cover for furnished properties
• Maintenance costs  
• Dry periods when you don’t have tenants.
• Extra rent if tenants fall into arrears. 
• Interest rate growth and related mortgage repayments.

Questions to consider before choosing your mortgage

• Have you received advice from a variety of mortgage consultants?
• Have you thought about how rising interest rates could affect you? 
• Do you have enough savings or income to pay for tenants who leave, rent arrears or if the property is empty? 
• Is the mortgage affordable and will I be able to pay it in the long term?

When it comes to buy to let mortgages we recommend you consider all of these questions before you sign a contract. In addition you should get independent tax, legal and property advice from qualified specialists who can help you to see all the disadvantages and benefits of this investment method.

Finding Your Tenants

Are you hoping to attract families, corporate couples, students or single people? Think about the type of tenant you would like to house and how your choice relates to the area you hope to buy in. Think about the type of facilities different groups of society need and how your property and the surrounding area can fulfil these needs.

Choose the right location

When it comes to owning a buy to let property you’ll need to think about a location wisely. Depending on the type of tenants you want to attract these are the type of questions you will need to consider:

• How near are shops, pubs, leisure facilities?
• Where can I find public transport?
• Are there parks and green areas nearby?
• Would families find a school nearby?
• Where is the nearest medical centre or hospital?
• Are there universities or colleges in the area?

Think about your property’s size and condition

The size and condition of your property are just as important as the location. Explore the market and discover what size of flat or house is most attractive to tenants in your chosen area. Also, think about the age of the property and how much maintenance work is required. Will you need to renovate straight away or is the property in peak condition?

Maintaining Your Property

What will I do when my property is empty?

If you can’t find tenants during certain periods you will be unable to pay your mortgage with rental income. By planning ahead and predicting tenant-free periods you may prevent being caught out. If you can save money as part of your regular rental income, this could help with payments in the future. However, if your property is in an area where there are more houses than tenants you could find that you get into mortgage arrears.

Why is regular maintenance important?

In addition to the basic repairs and replacements you may have to make, your property will be more attractive to future tenants if you take time to maintain every aspect of the property. Routine improvements at the end of each tenancy could ensure that the property is rented quickly, meaning you are less likely to deal with empty periods when there is no rent coming in.

Using a managing agent

If you think that you will have little time to deal with the landlord responsibilities involved, you might want to hire a managing agent. An agent can take care of any problems that occur, but may charge anything between 10%  to 15% of your monthly income.

However there are an increasing number of online managing agents who will charge you as little as 5-6%. They have agents around the country to manage your property but don't have the overheads associated with having physical offices on the high street etc. In this way they can substantially reduce their overheads and so pass this on to you by charging you a lower percentage!

You Legal Responsibilities

What are my legal responsibilities as a landlord?

As the property owner and landlord you will have to make sure repairs are carried out quickly, ensure gas, electrical fittings, furniture and furnishings meet safety requirements and other tenancy rights. Read through booklets such as ‘Assured and assured shorthold tenancies: a guide for landlords’ http://www.communities.gov.uk

If you hope to rent out a property in England and Wales or ‘Regulated Tenancies in Scotland - Your Rents, Rights and Responsibilities’ http://www.scotland.gov.uk for those with buy to let mortgages over the border. In this way you can understand your legal obligations, the rights of your tenants and all of your responsibilities.

By law you are required to have a valid Gas Safety Certificate (needs renewing each year) and as of the 1st October 2008 you are also required to provide an Energy Performance Certificate (EPC) for each rental property you own. The EPC is valid for 10 years.

Also don't forget that recent legislation means that you are also legally required to hold the tenants deposit in an approved scheme. If you're using a managing agent they will do this on your behalf (worth asking them to provide written confirmation that this is the case though). If you intend managing the property yourself you can use the government approved Deposit Protection Service - this is a free to use service, but do pay attention to the requirements to provide written documentation to your tenant within 14 days of the tenancy commencing! All the information you need is on their site so take time to read it through thoroughly.