The Costs of Buy to Let
Naturally, you will want to have a full understanding of the costs associated with Buy to Let (BTL).
There are three main areas where costs arise:
- Deposit – typically, the maximum BTL mortgage is 75% LTV – so you will need to fund at least a quarter of the property value.
- Arrangement fee – could be up to 3.5% of the amount borrowed. This can usually be added to the loan, and whilst it will attract interest, this can be offset against your tax liability.
- Other costs – such as legal fees, stamp duty (if appropriate), and a survey fee.
- Mortgage interest payments are usually the largest on going cost. Most lenders want to satisfy themselves that the rental income will more than cover the monthly mortgage payments. Most lenders look for rental income of at least 125% of the interest-only mortgage payments. This provides a safeguard against periods when the property isn’t let, and helps landlords meet the property running costs.
Property running costs
- Property maintenance – such as repairs and maintaining the safety of gas and electrical appliances
- Landlords building and contents insurance
- Service charges and ground rents – for leasehold properties
- Letting agent charges – if applicable
Usually the tenant is responsible for other property-related costs such as council tax, TV licence fee and utilities.
Your property may be repossessed if you do not keep up repayments on your mortgage.