Are you considering investing in the “buy to let” property market? Well, for a start you’ll need to choose the ideal property in the right location, fix the price, find a mortgage company to accept your proposition and then you’ll have to find between 15% and 20% of the agreed price as a deposit, plus stamp duties, surveys, search fees and legal expenses.

First of all, the area. If you’re thinking on a local basis, it’s easy enough to check a few letting agencies to see what sort of rental income homes in your area are achieving and if they seem to be letting easily. There are advantages in being able to keep an eye on the property and you may be able to carry out some of the maintenance yourself, saving costs.

If your thoughts are to look for something further afield, there are “investment hot spots”. There are a number of areas where accomplished landlords are starting to show interest. UCB Home Loans (Nationwide’s buy to let arm) have recently reported promising investment conditions in London, Colchester, Rugby, Peterborough, Bristol, Swansea, Glasgow and Belfast.
It doesn’t follow that all districts in large cities will offer the same investment opportunities. In London, for example, the prospect of the Olympics and up-grading of the area make east London an interesting proposition.

As far as a mortgage is concerned, buy-to-let lenders need you to demonstrate that the rental income will exceed the mortgage payments. It is usual for lenders to ask for a 15 to 20 per cent deposit and will expect you to show that the rental income will come to around 125% of the mortgage payments. This shows that you’ve allowed additional cash to pay for incidental expenses. Typically these are maintenance of the building and furnishings, letting agents’ fees, advertising and insurance of buildings. There may also be ground rent to pay. If you’re considering renting out a flat or flats, there will possibly be management charges. You may have to consider accountants fees too. Remember that if your property is unoccupied between tenants, you’ll still have to meet the mortgage payments.

Properties let for multiple occupation, i.e. having three of more storey and five or more unrelated tenants, will require licences and compliance with certain regulations which can be costly to implement.

HM Revenue and Customs will be interested in your investment too. First of all you need to inform them that you have become a landlord within three months of letting the property or you will risk a fine of £100.

Expenses can be offset against the rental charges so keep all invoices and receipts and the income after this is taxed under Schedule A, between 22 and 40 percent, depending on your income.

If you decide to sell the property and the value has increased, Capital Gains Tax will come into the equation. Calculations are as those for income tax so if you’re in the 40% tax bracket, this will apply to your income from let property too. You have a yearly CGT allowance. For 2006/7 this is £8,800 and if you own the property jointly with your partner, both can claim this amount. As an allowance for inflation, after the first two years the gain is reduced via taper relief at 5% for each year you own the property. There is a maximum term of 10 years for this.

Still on the tax front, when the property is occupied, the council tax is paid by the tenant. If the property is unoccupied and unfurnished there is no council tax payable for the first six months and thereafter a charge is made at a discounted rate. Similarly if the property is furnished but unoccupied there will be a discount on the full rate.

The good news is that mortgage rates have come down and are now not very much higher than standard residential deals. Two year fixed rates start at 4.99%.

Rental income is climbing at the fastest pace since mid 2001, according to a recent survey from the Royal Institution of Chartered Surveyors and landlords have been increasing the number of properties in their portfolios. Loans advanced on buy-to-let properties have increased considerably in recent months.

If you find a suitable property, a sensible move would be to make your next step via an internet mortgage broker. There are an increasing number of buy-to-let lenders and a wide variation in the type of mortgages on offer. A broker will do your research for you, considering your circumstances and come up with best possible deal.

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