Buy to Let
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What You Need to Know About Buy To Let Mortgages
If you purchase a residential property with the intention to rent it out for profit, you will need to use a Buy to Let mortgage. It is sometimes possible to change a standard residential mortgage to a Buy to Let, if you decide you want to rent out your own home, but you cannot personally live in any property that you own which has a Buy to Let mortgage.
Who can get a Buy to Let Mortgage?
There are a few additional criteria to meet to obtain a Buy to Let Mortgage, compared with a standard residential mortgage. These can vary slightly between lender, but most will expect you to:
- Be a homeowner
- Many lenders require an annual income of £25,000, some have no mimimum
- Have a good credit score
- Pay off the mortgage in full before the age of 75, 70 in some cases
- Some lenders will additionally insist that you have prior landlord experience
How does a Buy to Let mortgage differ from a standard residential mortgage?
In addition to the additional acceptance criteria, a Buy to Let mortgage also has a higher deposit requirement of 25% and higher arrangement fees than a standard residential mortgage. The mortgage interest rates are typically higher too, however, as Buy to Let mortgages are largely interest-only, monthly repayments are more easily affordable.
Another major difference with Buy to Let Mortgages is that they are not regulated by the Financial Conduct Authority, except for where you have purchased the property to rent exclusively to your immediate family.
How much can you borrow with a Buy to Let Mortgage?
With Buy to Let Mortgages, the amount you can borrow is determined by the potential rental yield (income) from your chosen property. Most lenders will want the rental yield to cover 125 -145% of the cost of your monthly mortgage payments.
Planning for when no rent is coming in
When you take on a Buy to Let property, it’s important to consider that it will not necessarily be occupied throughout the entire mortgage term.
Lenders may ask you to show how you will maintain mortgage repayments during periods of property vacancy, for example, whilst you renovate or advertise for tenants. Most high end protection policies will cover your property for periods where there is no rental income, for a variety of reasons.
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Don’t rely entirely on selling the property to pay off your mortgage
It’s fairly common practice for landlords to sell off their rental property in order to pay off the final lump sum at the end of their mortgage. It’s important to consider, however, that this might not be a viable option at the time.
There are a number of situations where selling your rental property either isn’t possible, due to a slow market or you don’t achieve an adequate sale price to fully repay the loan. You could consider a range of investments or saving plans to provide a back up plan, should one of these situations occur.
The tax implications of owning a Buy to Let Property
Becoming a landlord can be profitable, however, it also comes with many costs to consider. On top of the property maintenance and management costs, there are a number of tax implications. It’s advisable to seek tax advice about the below, prior to making a decision:
- An additional 3% Stamp Duty is due on each additional property that you own after your first residential home.
- You are liable to pay income tax on rental income earned from your property(ies)
- When you sell a rental properties, you will be liable for both capital gains tax and income tax on any profits of the sale
You may be entitled to tax relief on some of the costs involved in property rental if you’re a standard rate tax payer. This includes the cost of property repairs and maintenance, letting agency and/or property management agent fees and council tax and utility bills, where these are not paid by tenants.
How can The Mortgage Company Nottingham help me to find the right Buy to Let mortgage?
There are a wide range of Buy to Let Mortgages available from both high street and independent mortgage lenders, which can make choosing the most suitable mortgage a daunting task. Our Mortgage Brokers can help you to find competitive rates and mortgage lenders that suit your specific needs.
Maximising your rental income is a large part of owning Buy to Let property and at The Mortgage Company Nottingham, our experienced brokers can help you to secure a mortgage deal that allows you to do just that.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE