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Understanding a Buy-to-Let Mortgage


With generation rent well and truly here those who have some money and want to invest may be looking to the property market. However, if you have never thought about it before it can be a little daunting knowing where to start, so here is a guide to a better understanding of what a buy to let mortgage is. At least then that is one less thing you have to worry about.

First things first, with the competition high for rental properties there is more profit to be made in the market, this is good news for landlords although it does mean that tenants are forced into the rental market for a lot longer. As a result make sure that when it does come to set your rental price it is fair for both parties whilst being in line with average rates across the local market.

What is a buy-to-let mortgage?

If you are a first time landlord then it is important to understand how a buy-to-let mortgage works; a buy-to-let mortgage is simply money offered by a lender, usually a bank or building society, which is then used to purchase a property that the owner will not be living in. The difference between applying for a buy-to-let mortgage or a residential mortgage is the way in which the income of the borrower is assessed. For a buy-to-let mortgage the potential rental income is taken into account although all lenders will have different ways of assessing this so it is important to compare deals. Continue reading

Lending to landlords rising

monopoly housesA bigger proportion of the mortgage market than ever is accounted for by loans to landlords. Figures from the Council of Mortgage Lenders show that 13.4% of mortgage loans were made to landlords in the first quarter of 2013. In the last quarter of 2012, the proportion was 13%. In the first quarter of 2012, it was 12.9%. Continue reading

Taking Tenants on Benefits

social housingMany landlords refuse to take tenants who plan to pay their rent using housing benefit. There are several reasons for this. Some landlords are worried about frequent government changes to housing benefit rules causing delays in payment, and there may be worries about what happens if a tenant loses their benefit for any reason.

Continue reading

How to Deal with Rent Arrears?

It is every landlord’s nightmare: a previously reliable tenant fails to pay their rent on time. This can leave landlords struggling to meet their mortgage repayments, and causes a huge amount of stress. Most landlords will have to deal with arrears at some stage, with around 9% of rent unpaid or late.

Rising rents are good news for landlords who want to grow their business, but combined with relatively high unemployment and growth in inflation outstripping growth in wages, they can mean that tenants struggle to meet payments. The percentage of late or unpaid rent fell slightly in August, but had been steadily growing for several months before that.


As always, prevention is better than cure when it comes to rent arrears. Carrying out full credit and referencing checks on tenants can help eliminate those with a history of non-payment of rent or other credit difficulties. However, it can’t predict whether conscientious and financially stable tenants will suddenly experience financial problems due to illness or redundancy.

Landlords should encourage an open and honest relationship with their tenants, so that if the worst does happen, they will be able to work with them to deal with the problem before it escalates. Many tenants who lose their jobs will be able to access housing benefit to help them pay rent, and landlords should encourage them to do this. Tenants should also be encouraged to contact landlords before a rent payment is due if they think they are going to struggle to pay. Rather than missing the whole payment, they may be able to negotiate a part payment that will allow the landlord to pay their mortgage, with full payments being met once the tenant is solvent again. Sometimes, landlords may be able to negotiate a payment holiday with their mortgage company to allow tenants to clear the arrears.


While landlords should always do everything they can to help tenants before moving to legal threats and eviction, it will sometimes be necessary. Eviction does take time, however, and landlords need to be able to meet their mortgage payments in the meantime. Some landlord insurance includes arrears protection, which can give landlords some breathing space while they deal with the legal processes. Landlords should issues tenants notice of possession under Section 8 of the housing act. They are allowed two weeks to respond, after which a court will hear the case if the tenant has not either paid or moved out.

Arrears are stressful for everyone involved, and many tenants who find themselves unable to pay rent would rather work with their landlord to clear the arrears than against them. Where they can’t or won’t do so, landlords should move to use the legal system to protect themselves against financial difficulties of their own.

Growth in student rent declines

The annual growth rate in student rent has slowed down, making many landlords and potential property investors consider whether the student market will continue to be as lucrative as it is. As the number of students enrolling at university drops due to the rise in tuition fees, the student housing market stands at an unknown with no-one really knowing how it will end up. What is for certain is that the numbers are showing it is in decline, something for landlords to keep in mind.

Why has the student rent declined?

The most obvious reason for student rent declining is that the number of students being admitted to universities each year has dropped. As a consequence of this, many landlords who have purchased properties with the student market in mind have had trouble finding the number of tenants they would have liked. However, there is some hope for landlords as recent research has shown that the cost of halls of residence renting has risen by 5.5% in the last year.

Statistics about student renting

A number of important statistics regarding student housing and it’s relevant areas have come out this year, highlighting many trends and patterns that landlord should be aware of.

- Average cost of a room in a student flat-share has risen by 3% from £332 to £345 PCM.
- However, average cost of non-student flat-shares is up 7.6%, suggesting the student market is not growing as it should be.
- University applications fell from 456,581 last year to 425,858 this year – less students = less renters.
- Halls of residence costs have risen more than student flat-shares at 5.5%.

What do these numbers mean for landlords?

All the numbers suggest that the student housing market may not be the way forward after all. However, it may not be so simple to make this assumption based on only a year’s trend. Given that halls of residence fees are continually rising at a higher rate, many students will perhaps be looking to find a cheaper place to stay. Also given the fact that tuition fees are already burning a hole in their future pockets with all the debt they are in, it is natural to assume that there will still be a healthy number of students looking for a place to rent. On the plus-side however, moving out of the student housing market could significantly reduce your landlord insurance quote, given their reputation for being less than friendly with houses during their university days.

Surrey is the Richest County in the UK

According to the latest survey by, a property website, Surrey is the richest county in the UK in terms of property and has 5 per cent of Britain’s property wealth which is valued at £5.6 trillion.

The survey also unveiled that Surrey also has the greatest property wealth per person which is on average £255,125. From the survey it shows that the counties in the South of the UK are dominating the top 10. Dorset is the second richest with the property per person on average £207,220, then Buckinghamshire with £198,490 and East Sussex fourth with £196,300 per head.

Demand Drives Wealth

Nigel Lewis who is a property analyst for says there is only one key factor that drives wealth per head and that’s demand.

“Homes in and around the capital will always be sought after because of the increased population density in the South and its better employment opportunities.”

Regionally, the South East has the greatest property wealth in the country which has nearly 30 per cent of the country fortune. The total amount here that the homes are worth is £1.65 trillion.

Top 10 Counties by Property Per Head:

1. Surrey – £255,125
2. Dorset – £207,220
3. Buckinghamshire – £198,490
4. East Sussex – £196,300
5. Essex – £178,705
6. Hertfordshire – £175,492
7. Devon – £161,817
8. Hampshire – £159,171
9. Kent – £157,288
10. Warwickshire – £145,431

Rental Market

These high prices can be both a blessing and a curse for sellers and buyers respectively. The prices also mean first time buyers are also more likely to have to move out of this area as it is just too expensive. These prices are also driving those who can’t afford these prices to rent properties. As there are so many potential first time buyers who cannot buy homes, the supply for rental properties is very underwhelming compared to the demand. This also forces rental prices up which is great for landlords and not so good for tenants.

One of the other factors contributing to the cost of rental properties is landlord insurance. The cheaper the insurance, the cheaper rental prices are for tenants each month and in turn this will make homes even more desirable.

Brief Introduction on Houses with Multiple Private Tenants

The private rental sector is a market that is continuing to grow, as the buying market goes through regular fluctuations. With comparably lower deposit costs and monthly payments, tenant demand has been quite overwhelming, resulting in Landlords having a wide variety of prospective tenants interested in their property.

However rent prices have been rising for a few months now and it is harder for single people, without buddies to live with, to secure a rented property just for themselves. So the alternative for them is to rent just one room in a house share or house in multiple occupation (HMO). This reduces their expenses and landlords can benefit from purchasing properties with a large number of bedrooms which could be too large for most families.

What Is a HMO?

HMO are properties let to at least three tenants who are not related and share common living spaces and bathrooms. The types of properties that can qualify as a HMO include:

• Bedsits
• Shared Houses and Flats
• Households with a lodger
• Hostels and Bed & Breakfasts for vulnerable people
• Self-contained flats converted from houses

Landlords and HMO

If you’re interested in becoming a landlord to a HMO then you must obtain a licence which will outline conditions for your property, provided it is three or more storeys and occupied by five or more people, who form more than one household. If you do not require a licence you are still expected to meet management regulations and inspections under the Housing Health and Safety Rating System.

A lot more time and investment goes into managing a HMO as you hold multiple contracts for tenants within one property, however it is still fairly similar to a regular landlord’s responsibilities. There is also great emphasis on providing good housing conditions; otherwise your local council can get involved. Another similarity is the requirement for good landlord insurance as certain tenant behaviour can affect your policy.

For more details on HMO you can contact your local authority.

Letting to Young People

The number of first time buyers who are struggling to get a mortgage and save a deposit to get onto the property ladder is increasing, so it’s no surprise that a large proportion of the rental property market is under the age of 35.

It would be helpful to think about how you could market your property to this age group and what types of people might be renting your property.

Young Professionals

A lot of under 35s are young professionals, maybe graduates or school leavers looking to move away from home. Many young professionals will look for a property that’s convenient to transport, as they’ll have to commute to their work. Because they are usually always on the go, many would really appreciate facilities in the property like washing machines, dryers and dishwashers. It’s always important to screen your tenants and conduct proper credit checks, though it’s unlikely that you will encounter difficulty with any tenant.


Having a property near to a good college or university will be sure to bring you income. Most students are laid back when it comes to any problems to their property, however, students are known for occasionally causing breakages to property, so to minimise the impact of these accidents, you should take out landlords insurance.

Letting to the under 35s might be where the bulk of your rental income will come from, so you should be well kitted out to provide a property that is functional for young people.

If you are considering letting to younger people, marketing online can be a good tool for attracting them and it’s worth taking time to research the marketing potential of sites online.

Private landlords in the firing line as HMRC target tax dodgers

Landlords across the UK have been warned that they will come under the beady eye of Her Majesty’s Revenue and Custom (HMRC) officials as the Government look to find extra cash from an industry that is currently booming.

Task Force set out for Wild West!

The Government announced several months ago that they were employing hundreds more tax inspectors to cut down on tax dodgers and it appears that property investors with an interest in landlord insurance are in the firing line as the buy-to-let sector is one of the first targets. Unfortunately for landlords in the North West and Wales they will be the first region to come under the microscope. HMRC have set up a “task force” to concentrate on the property sector but say honest businessmen have nothing to fear.

Accountants can help

Many landlords of course utilise accountancy firms to make sure their businesses stay on the right side of the law and it is clearly a good strategy in an industry where monetary dealings can be complicated. Landlords deal with mortgages, rents, loans and property insurance fees on a daily basis and it is very easy to let things slide when another business based problem crops up. Health and Safety issues, non payment of rent, tenant checks, dealing with agents and the procedures surrounding tenant deposits are time consuming and can easily distract landlords from scrupulous bookkeeping. Landlord groups such as the National Association of Landlords and the Residential Landlords Association can put landlords in touch with accountants who have an understanding of the sector and in the long run can save investors, time money and worry.

Allied industries also targeted

The HMRC have confirmed the task force will concentrate on landlords with three properties or more and self employed construction workers in the same area, who often work with private landlords, will also find themselves under scrutiny. The tax men insist the buy-to-let sector is just one of many industries that will be investigated over the next 24 months in a bid to bring in extra revenue of up to £7 billion.

Identify your costs

Although the overwhelming body of opinion in the private letting sector suggests the opportunities for those thinking about entering the market have never been better, those who have been persuaded to dangle their feet in the choppy waters of the landlord business would be well advised to think about exactly what they aim to get out of the business before they even arrange business property insurance.

Opportunity knocks

It may seem straightforward at the moment. Young couples looking to buy a home of their own can’t afford a mortgage, homeowners looking to sell their property are having to bring their prices down because of the paucity of prospective buyers out there and tenants looking for a decent place to live are saturating the market. It would seem that all one needs is a hefty deposit, although even that requirement is dropping slightly on buy to let loans, and a clear idea of what you want to achieve.

Rental yield not easy to understand

There are plenty of places where you can get advice and good financial advice is paramount. Any financial advisor will tell a landlord new to the business to work out his rental yield before he buys a property, but that is somewhat easier said than done and is a calculation that is susceptible to dramatic change. It is basically the amount of money you make from your property divided by the cost/value of the property.

It is the value of a property that often makes the rental yield figures susceptible to change. A property bought for £100,000 in today’s stagnant market will probably shift very little over the next 12 months however, in a volatile market the value can change quickly and dramatically. Landlords who bought property at the turn of the century were looking at vastly changed yields when their properties doubled in value by 2007.

Factor in costs

The other side of the equation is easier to understand, easier to manage but absolutely imperative to get right. You must take into account any costs you are likely to incur and offset them against the amount of rent you expect to achieve. Taking costs as a percentage of the rental income you expect to bring in, then first and foremost comes your mortgage and that may well be anything upwards of 70%. No landlord should be without residential property insurance which usually costs around 3% of the rental value. Take out 10% for the upkeep of the flat i.e. replacing damaged fixtures and fittings and factor in 8% for the void periods that no landlord wants but must allow for.

Forewarned is forearmed

Once you start adding these things up it soon becomes apparent the importance of keeping your finger on the pulse of your business and how susceptible it is to fluctuations in the housing market that you have little power over. Starting off with this knowledge though will help any prospective landlord understand the subtleties of the business and not to expect easy pickings without putting in the hard work.