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Buy to Let Mortgages

Key to a Contractor’s Continued Prosperity

Whether you’re a contractor looking for a pension pot top up or additional income, buy-to-let is a viable option. Yes, the property has to be suitable for BTL and the reciprocal mortgage competitive.

What puts many people off investing this way is it seems to invite unwarranted hassle. That’s not the case in today’s market. Lenders are familiar with buy-to-let. They’ve had to be as it’s helped support the UK mortgage industry since the credit crunch.

Tighter lending criteria has frozen many people out of the mortgage market, thus, the rental market is huge. Contractors are perfectly positioned to bridge that gap.

Here’s Freelancer Financials’ John Yerou. He’s going to explain how contractors can make the most of Buy-to-Let as a workable investment strategy.

Why is Buy-to-Let so popular with self-employed contractors?

It’s not surprising that contractors are choosing the landlord route as a way to shore up their future. For a start, buy-to-let mortgage rates are at their lowest ever level. There’s not a lot happening in the financial market to suggest they’re going to reverse any time soon, either.

Savings rates, even ISAs, are not performing. This will get worse if the forecast that inflation will enter a negative status in Q2 2015 is accurate.

There’s also talk of the BoE base rate reducing even further, not increasing as many predicted last year. Savings will be, in real terms, costing you money.

And when the rules relaxing the drawdown of pension pots in April come into force?

Contractors need a better return to save their hard work going to waste. So all things considered, we expect the trend of property investment to soar, moving forward.

What’s the best advice for would-be landlords?

There are two key things to get to know about leasing property; your:

  1. market and its potential (rental and exit strategy);
  2. management team, from lenders to agents and everyone between.

The only way you’re going to get familiar with those aspects of your project is research. The more you put in up front, the better your ROI in the long run.

Search for the right property

There are plenty of places from where you can draw inspiration for your desired property. Estate agents, on the High Street or online, and auctions are the obvious places. But there are specialist publications like Daltons Weekly, as well as your local rag, too.

They’re great for measuring what your budget can stretch to. But don’t just concentrate on what’s on your doorstep.

You may feel the need to keep personal tabs on your investment. But remember why you’re doing this. It’s to accrue savings in an unobtrusive way.

You have to be honest and ask yourself if your locale suited to property rental. Other towns or nearby cities may have universities and hospitals more suited to the type of client you’d like to attract.

Is there an opportunity for a buy-to-let in an upcoming suburb with great transport links? How are the local schools performing? If you’re hoping to lease to a family, commuting and great schools can add to your income.

To accommodate out-of-town homes, many contractors employ an agent. They have experience in looking after leased properties and tenants. Yes, it’s an additional cost, but you can get on with earning while they keep the wheels rolling on your investment.

Dealing with the finance

There’s no getting away from the fact that you’re going to have to deal with letting agents and solicitors. But first of all, you need to speak to an independent financial advisor.

Buy-to-let mortgages aren’t the same as residential mortgages. They’re not governed by the FCA and they have different criteria.

An IFA will ensure you choose the most advantageous finance package. And that doesn’t just mean a competitive interest rate.

At some point, you will want to cash in on your property, so you need an exit strategy. But you also need to cover yourself while you still own the home.

Your adviser should be able to offer you advice and products suited to your circumstances. This includes any deposit and an expectation of your yield.

The yield is the return on investment over a year. The perfect formula, if you like, is for you to have 25% deposit and a monthly income of 125% of the mortgage repayment.

So, if your mortgage repayment was £600 pcm, a lender would like to see you realise £750 in rent from your tenant.

Are there any foreseeable problems?

The problem contractors face is not so much proving the market’s viability, but getting a mortgage. Even though buy-to-let is not regulated (yet), with no fixed income, banks often show contractors the door.

A specialist buy-to-let contractor mortgage broker can provide you with all the answers. The High Street is not a welcoming place for contract-based underwriting of any nature.

Part of that advice will include safeguarding against a property sitting empty for a time. You, as landlord, will be responsible for periodic makeovers of the property, too.

Often the best time to do this is whilst there are no sitting tenants. So when the rent comes in, make sure to set aside enough for ongoing maintenance.

There are still a few fly-by-night firms offering no-deposit routes into buy-to-let. These are dubious and, to be honest, bordering on illegal.

Using such a company is not worth risking so much of your hard-earned cash. Use a reputable broker with an impeccable record.

Your last decision will be whether to manage the property yourself or go through an agent. An agency will have access to all the workmen you need as well as collecting rent, etc.

You can keep all your income, of course, and manage the project yourself. But once you get the buy-to-let bug, you’ll soon find you have little time on your hands. Running repairs, advertising when the property is empty and managing insurance will all be down to you.

Summary

Buy-to-let is a great way for contractors to remain prosperous as options become more limited. You won’t get rich overnight, but your investment will do more for you than leaving your cash in an ISA. That, as they say, is as safe as houses.