I am thinking of buying a flat to let out and was wondering about the extra charges, such as the service charge and ground rent. Are these taken into account by a mortgage lender? I anticipate being able to charge a rent of £1,000 a month for the flat but that does not include the extra charges, which I assume a tenant would have to pay separately to the leaseholder – or would I be responsible for that?
Two questions, requiring separate answers. Firstly, most buy to let lenders don’t take services charges or ground rent into account when making lending decisions. They will use their rent to interest calculation; currently the average RTI is 125% @ 5% or pay rate, whichever is higher. Some lenders will also look at your income in addition to rent– they prefer borrowers who earn at least £25k pa.
Secondly, you would most likely be responsible for paying the service charge and ground rent not the tenant, so make sure you factor these costs into your budget. If the figures don’t add up, then don’t make the purchase – you don’t want to be left out of pocket or struggle to pay the mortgage.
1st January 0001