Cut The Costs of Buy-To-Let
Donna Ferguson looks at four ways to keep the costs of a buy-to-let investment down - and how to find the most competitive buy-to-let mortgage deal.
Whether you're an experienced landlord with a large property portfolio or a novice investor contemplating your first foray into buy-to-let property, next year looks to be an interesting year.
On the one hand, you have:
- Increased mortgage costs following five interest rate rises
- Widespread predictions that house prices will flatten out or fall, reducing the likelihood of significant capital growth
- A weaker property market, where fewer transactions are due to take place.
And on the other hand, you have:
- The chance to snap up possible bargains in a buyer's market where repossessions are set to rise
- A predicted 10% increase in rental demand, mainly from immigrants and first-time buyers who either cannot afford to buy or prefer not to buy in an uncertain market
- A drop in interest rates on the horizon.
Whatever the future holds, the situation at the moment is looking surprisingly positive for landlords. The Royal Institution of Chartered Surveyors recently reported record growth in the demand for rental property, and the National Landlords Association claims landlords are feeling confident and one in four are planning to grow their property portfolio over the next five years.
Of course, you may not be so confident. But whether you're looking forward to the opportunities the coming year may bring, or more concerned about falling returns, it's still important to try to keep your costs to a minimum. Then you can maximise your investment.
Here are four ways to do it:
Get An Interest-Only Mortgage
Most experienced landlords opt for interest-only mortgages. With this type of mortgage, you only pay the interest on your debt every month and leave repayment of the capital until you come to sell. While this will cost you more overall in interest payments, it does have two distinct advantages:
1. It reduces your monthly payments. This is important, as it will help you to meet your mortgage payments despite the rate hikes.
2. It is tax-efficient. You can offset your interest payments against your income tax, and when you come to sell, your liability for Capital Gains Tax may potentially be reduced.
Engage An Accountant
Buy-to-let landlords are seen as business owners by the Inland Revenue. This means some of your expenses can be deducted from your gross income for tax purposes. A good accountant will be able to ensure you take full advantage of your tax allowances for:
- Wear and tear of carpets, fixtures and fittings
- Cleaning costs
- Costs of advertising the property
- Buildings and contents insurance
- Insurance policies on boilers or white goods
- Maintenance costs
- Any ground rent or service charges
You can even class your accountant's fees as a business expense. Use The Motley Fool's award-winning Mortgage Service to find a buy-to-let tax specialist, or you can search for one yourself online via the Institute of Chartered Accountants.
Take Out Emergency Cover Insurance
One of the best ways to keep your buy-to-let costs down -- both in terms of money and in terms of time and hassle is to take out emergency cover insurance, instead of using a letting agent.
Letting agents take a 15% cut to arrange for emergency repairs to be carried out, and you may still have to pay for the repairs yourself.
By contrast, landlord's emergency cover insurance, offered by companies like Quoteline Direct, only costs around 20 a year and will cover you for emergency repairs up to 300. Tenants can also call a 24-hour emergency hotline -- so you don't have to deal with the problem yourself at all.
Speak To A Mortgage Broker
Many buy-to-let mortgage lenders are specialist lenders, which only offer mortgages through brokers. This means mortgage brokers have access to exclusive deals you can't find on the high street, and know the criteria of the many different buy-to-let lenders inside-out.
If you want to get the most competitive buy-to-let mortgage deal, it is a good idea to use a whole-of-market broker, who will be able to shop around the entire mortgage market and advise you on what is available.
Who can say what the future holds for buy-to-let? In an uncertain market, it's vital to maximise profits and make the most of your investment. But if you can keep your costs down with an interest-only mortgage, emergency cover insurance, a good accountant and a professional broker, you should be able to stay one step ahead of the game. Good luck!
>If you want fee-free, whole-of-market mortgage advice, check out The Motley Fool's Mortgage Service.