If you
are new to the buy to let market there are several
factors you need to take into account.
Rising costs
Your rental income and any profit may be reduced
as the costs of maintaining your property increase.
The lender’s assessment of rental income against monthly
loan repayments is based upon the current interest
rates and does not take into account interest rate
increases – where your monthly rental income could
be below the monthly mortgage payment.
House prices not rising
As expected means that your investment may not perform
as you wish and the potential gains that you hoping
for may not materialise.
Falling house prices
Falling house prices could also affect you in a
similar manner particularly if you have chosen to
fund this purchase on an interest only basis there
could be the possibility of you incurring a negative
equity situation whereby the sale of the property
could lose you money.
Periods of non rental
If the property were to remain vacant for a period
of time, you will still be responsible for maintaining
monthly mortgage repayments.
Bad tenants
You also need to take into account the implications
of “bad tenants”
who may cause damage to the property or vacate it
in a state of disrepair – this would mean financial
outlay to yourself for putting the property into a
habitable state.
Tax Implications
As this property is not your main residence there
are tax issues in respect of rental income and capital
gains tax which would be payable on disposal of the
property you are purchasing. You should consult an
accountant to ensure that you are fully aware of taxation
implications.
Your
home may be repossessed if you do not keep up repayments
on your mortgage.
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