Buy to Let Mortgages
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What you need to know about Buy to Let mortgages
Buy to Let mortgages are necessary if you want to purchase a residential property to rent out in the capacity of a landlord. It’s important to note that Buy to Let mortgages do not allow for the owner to use the property for their own residential home, even during a renovation process. If you already own a residential property, however, it’s sometimes possible to change your standard residential mortgage to Buy to Let, if you decide to let it out at a later date.
Who can get a Buy to Let mortgage?
It can be a bit more difficult to meet the criteria for a Buy to Let mortgage, than a Standard Residential mortgage, many Mortgage Lenders will expect you to fulfil the following criteria:
- Already be a homeowner (have your own residential property)
- Have an annual income of at least £25,000 and a strong credit score (not always a minimum salary requirement)
- Be able to pay off the mortgage before turning 70
- Additionally, some lenders will insist that you have previous landlord experience
How does a Buy to Let mortgage differ from a Standard Residential mortgage?
Buy to Let mortgages work similarly to the Standard Residential mortgage, although they are predominantly Interest-only. The maximum Loan to Value most lenders will offer for a Buy to Let property is around 75%, so you will require a minimum of 25% Fees and interest rates also tend to be higher than a standard residential mortgage, however, this is balanced by the lower monthly repayments with an Interest-Only mortgage.
Buy to Let mortgages are not regulated by the Financial Conduct Authority unless the purchase is intended specifically for the purpose of renting to close family members.
How much can you borrow with a Buy to Let mortgage?
Buy to Let mortgages are calculated based on the potential rental yield (income) from the property you are looking to purchase, rather than solely on personal affordability. Most lenders will require that your chosen property is able to provide a rental yield of between 125 -145% of your mortgage payments.
Planning for when no rent is coming in
Before making a mortgage application it’s important to consider how you’ll maintain the mortgage repayments whilst your Buy to Let property is vacant. Investing in property can provide a stable income, however, all rental properties will have times where no rental income is earned, for example, whilst advertising for new tenants or during renovation works.
Landlords insurance and high-end rental protection policies often cover rental properties through periods of vacancy and therefore are a great safety net for a wide range of situations.
Speak To An Expert
We provide professional, friendly and accessible advice and support throughout the mortgage application process, and are able to offer recommendations and referrals to trusted conveyancing and estate agent colleagues too.
Ensure you can repay the loan at the end of the mortgage term
It’s common for landlords to sell the property at the end of the Buy to Let mortgage term in order to pay off the final lump sum. This is an achievable repayment option in many cases, however, there are some situations where it isn’t viable.
A recent slump in the market could mean that your property won’t sell or that you end up accepting a lower than the expected sale price. As this sort of situation is difficult to anticipate, it’s sensible to have a backup plan in place. Perhaps you have other properties in your portfolio or an unrelated investment scheme in place.
The tax implications of owning a Buy to Let property
As a landlord, there are many tax implications to be aware of:
- Owning more than one property (including your residential home) incurs an extra 3% Stamp Duty fee on each additional property that you own
- Income tax is payable on all earnings from your rental property(ies)
- Capital Gains Tax and income tax are payable on any profits you make from the sale of your rental properties
Landlords who are standard rate taxpayers are entitled to some tax relief on related rental costs, such as; property repairs, council tax and utility bills that you pay yourself and property management/letting agent fees.
How can Mortgage Broker Services help?
There is a wide range of Buy to Let mortgages available from both high street and specialist mortgage lenders, choosing which product is the most suitable for you, however, can be difficult.
At Mortgage Broker Services, we know how important finding the right Buy to Let mortgage is in ensuring that you achieve the optimum amount of profit from your investment. That’s why we’re passionate about helping you to secure the mortgage deal that provides you with the best long term benefits.
Your property may be repossessed if you do not keep up repayments on your mortgage
Some buy to let and let to buy mortgages are not regulated by the Financial Conduct Authority