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How do buy to let mortgages work?

Buy-to-let mortgages work in a very similar way to other mortgage products in that the mortgage loan is secured against a property and you will need to make monthly repayments to repay the loan over a predetermined timeframe.

But-to-let mortgages allow individuals to build up a property portfolio and become a private landlord. In order to be approved for a buy-to-let mortgage you will need to have sufficient capital to use as a deposit.

Where buy-to-let mortgages differ is in their impact on you. When you secure a property which you subsequently let to tenants, you become a landlord. Being a landlord means you have certain legal requirements which you must meet. The legalities differ depending on the type of tenancy that you offer, as a guide you should:

  • Provide an energy certificate for your home to your tenant
  • Provide your full name and address and any details of letting agencies that you use to your tenant
  • Protect your tenants deposit using a Government approved scheme, Shelter UK provides good information on the requirements .
  • Return the deposit at the end of the tenancy unless there is a dispute about damage or unpaid rent.
  • Carry out most repairs, particularly to the exterior of the property
  • Provide a safe environment, this includes relevant gas and electrical checks and certification, fitting smoke and carbon dioxide alarms and, often overlooked but still a legal requirement, check that any furniture provided meets minimum legal safety requirements.
  • Say when rent is due, how it is to be paid
  • Never refuse payment of rent!
  • Never attempt to access the property without first providing sufficient notice to your tenants. This includes access for maintenance and inspections, you cannot simply turn up and walk in as this can be classed as harassment.
  • Provide written notice to your tenants if you want to terminate the rental agreement.
  • Secure a court order if you wish to evict your tenants
  • Provide a rent book if you collect your rent on a weekly basis
  • Only increase rent in line with contractual arrangements and never increase the rent when within an existing contract unless the tenant agrees to it.

In summary, buy-to-let mortgages are very straightforward but becoming a landlord is a significant step and has additional legal consideration that you must meet. It is the landlord element of buy-to-let which makes the investment risky in the short term. Long term risks are more fiscally related to the mortgage amount and future price of the property. As with all investments, there is no guarantee that you will get out what you put in. It is also worth noting that there is no fall back or body which will support you if things go wrong, as a landlord you are pretty much on your own.

In our next buy-to-let mortgage guide we look at the budget considerations that are key to a successful buy-to-let investment.

Next: Budgeting for a buy-to-let mortgage

Previous: What is a Buy-to-let Mortgage?