Investing in buy-to-let properties
The Buy to Let market has changed in recent years: new rules for stamp duty and income tax mean that investing in property is now harder than it once was. But for many, the idea of becoming a landlord is still attractive.
If you are considering investing in buy-to-let property, you need to fully understand the costs involved. To evaluate your options and make the right decision for you, you will need to make sure that you can:
• Afford the deposit, as buy-to-let finance providers typically ask for a higher deposit – the most common being 25% of the value of the property. You also need to factor in costs such as stamp duty.
• Understand all the fees and charges associated with setting up buy-to-let finance, including admin fees, solicitor’s fees, property valuation charges and survey fees etc.
• Calculate your monthly payments, both now and what they could be if rental rates increase. You can find online calculators that will help you to do this, including Al Rayan Bank’s Buy to Let Purchase Plan payment calculator.
• Factor in your ongoing expenses such as landlords’ insurance, tenanting fees and management fees (if you plan to use an agent), maintenance, refurbishment costs and the costs of having your property stand empty if you cannot find a tenant.
• Understand the new rules for landlords. New rules mean that landlords will no longer be able to claim tax relief on the cost associated with purchasing buy-to-let property. These tax relief changes have been phased in gradually since 2017:
• 2017-18 tax year: landlords could claim 75% property finance tax relief
• 2018-19 tax year: landlords can claim 50% property finance tax relief
• 2019-20 tax year: landlords can claim 25% property finance tax relief
• 2020-21 tax year: landlords will no longer be able to deduct property finance costs from the income earned from renting the property and will instead get a 20% tax credit against property finance.
How our Buy-To-Let Purchase Plans work
Al Rayan Bank offers two Buy-To-Let Purchase Plans, a rent and acquisition plan, and a rent only plan.
With a Buy-To-Let Purchase Plan we purchase a buy-to-let property together, as partners. With the rent and acquisition option, you pay rent on the portion that the Bank owns and gradually acquire our share through monthly acquisition payments over the term of the finance agreement. With the rent only option, you make a lump-sum acquisition payment at the end of the finance term.
Our ‘Buy To Let Purchase Plan’ brochure explains our range in more detail, and covers a number of key points including the agreements you’ll need and the application process, as well as including a comprehensive Q&A. You can download the brochure here.
There is also a video featuring Dr Samir Alamad, Al Rayan Bank's Head of Sharia Compliance & Product Development, explaining how Al Rayan Bank's home finance works and how it differs from a conventional mortgage.
Sharia-compliant buy-to-let finance.
Once you have weighed up the pros and cons, if you want to become a landlord, the next key step is to find the right property finance provider for you.
Al Rayan Bank’s ethical, Sharia-compliant buy-to-let finance enables you to benefit from property investments without paying interest, which is forbidden in Islam. Our Buy To Let Purchase Plans use the Islamic finance principles of Co-ownership (Diminishing Musharaka) with Leasing (Ijara*).
Rental rates are available on up to 75% finance to value (FTV) on rent and acquisition products, and up to 65% FTV on rent-only products. You can find out more here.
YOUR PROPERTY MAY BE AT RISK IF YOU DO NOT KEEP UP THE PAYMENTS ON YOUR BUY TO LET PURCHASE PLAN
*Buy To Let Purchase Plan customers in Scotland pay an 'occupancy payment' under a 'co-beneficiaries' agreement.
Note: Buy to Let Purchase Plans are not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.