The tips can be accessed on the lender’s buy-to-let microsite at www.ucbhomeloans.co.uk/buytolet, together with a guide on buying-to-let and a series of six-monthly reports that the company produces on the buy-to-let sector.
The twelve tips are released at a time when figures show that buy-to-let purchases are higher this year than at any time since the market began to take off around six years ago.
UCB Home Loans estimates that the total value of new buy-to-let mortgages taken out in the UK this year will be over £22 billion, compared with £19.2 billion in 2003, £12.2 billion in 2002, £6.9 billion in 2001 and £3.9 billion in 2000. Confirmed figures for 2004 will be released by the Council of Mortgage Lenders in about two months time.
“The total value of buy-to-let mortgages outstanding is now about ten times higher than it was five years ago,” says UCB Home Loans managing director, Charles Reed. “It stood at £5.4 billion at the beginning of 2000 and we expect it to be in the region of £50 billion by the end of this year.“
The top tips are as follows:
1. Choose the right property
Make sure the property is in an area that is well suited to letting. Take advice from local specialised letting agents on the suitability of the area and types of property that are in demand.
2. Get the right financing
If you already own your own home, you should be eligible for a mortgage on a buy-to-let property. Speak to the lender to establish how much you can borrow.
3. Take a long-term view
Always treat entry into this market as a medium to long-term investment. Ten years is a reasonable minimum period over which to plan your investment.
4. Consider the hidden costs
Give consideration to the amount of maintenance the property is likely to need and what this may cost. As landlord, maintenance will be your responsibility. Make sure that the rent not only covers the mortgage, but the 'hidden costs' of maintenance and insurance as well.
5. Think about a contingency fund
It could be a good idea to have a reserve fund to dip into every now and then. Make sure that you have the equivalent of three months’ rental income put aside to cover mortgage payments during void periods between tenants.
6. Choose a letting agent
You can opt to manage the property yourself but, for a fee of around 15% of the gross rental income, a letting agent will take care of tasks such as finding tenants, collecting the necessary references and rent.
7. Put the right tenancy agreement in place
Always have a tenancy agreement in place before a tenant occupies your property. Your letting agent or solicitor can help you with this.
8. Ensure you have the right insurance
As the owner, you are responsible for insuring the structure of your property, which will include any permanent fixtures and fittings within the property. Check your policy as many buildings insurance policies exclude buy-to-let properties, although some lenders now offer specific policies to cover your needs.
9. Comply with fire regulations
In addition to insurance, local authorities require you to comply with fire regulations. Among other things, this could mean putting in fire doors and smoke detectors. Ring your local authority for advice and a fact sheet.
10. Sort out your tax position
If you become a private landlord your tax position may be affected. Any profit you make when you sell the buy-to-let property will be liable to Capital Gains Tax (CGT) charged at the highest rate of income tax. It may be worth putting the property in joint names to make the most of two personal allowances. Rental income is also taxable but remember that the mortgage payments are tax deductible.
11. Before tenants move in you must produce a detailed inventory
If you are letting a furnished property, always make sure the tenant signs a detailed inventory of all the contents. This will help safeguard against any missing or damaged items.
12. Always get a deposit
Always get a deposit from your tenants before they move in. This will protect you against any damage caused by the tenants or a default on the rental payments.
In addition to the top tips, a free guide on buy-to-let is available from UCB Home Loans on 0845 950 1500. It covers many aspects of the buying process, such as choosing the right property, tax, tenancy agreements, legal considerations and financing.
