Buy to Let Mortgages
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Buy to Let Mortgage Advice
If you’re planning to purchase a residential property in order to rent it out for profit, you’ll need a Buy to Let mortgage. You will not be allowed to live in the property once a Buy to Let mortgage is in place. 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.
Who can get a Buy to Let Mortgage?
There are a number of criteria you will need to meet in order to secure a Buy to Let Mortgage:
- Some lenders ask you to own a residential property for your own home, however there are few that do not insist on this.
- Some lenders will insist on a minimum salary however there are a small number that have no minimum income threshold.
- Have a good credit score
- Some lenders will insist on previous landlord experience
How does a Buy to Let mortgage differ from a standard residential mortgage?
A Buy to Let mortgage has a higher deposit requirement (25% minimum) and fees than a standard residential mortgage. The interest rates are also usually higher, however, Buy to Let mortgages are predominantly interest-only, so the monthly repayments are more affordable throughout the duration of the mortgage. As with any interest-only mortgage, you pay off the full loan amount at the end of the mortgage term.
Unlike residential mortgages, Buy to Let Mortgages are not regulated by the Financial Conduct Authority (FCA), unless you purchase a property specifically to rent to immediate family.
How much can you borrow with a Buy to Let Mortgage?
Perhaps the most significant way a Buy to Let Mortgage differs from other mortgages, is that the loan is calculated based on the potential rental yield (income) from the property, rather than personal affordability.
Most lenders will expect your chosen property’s rental yield to provide 125 -145% of your monthly mortgage payments. How much you can borrow with a Buy to Let Mortgage will therefore vary quite dramatically depending on the property you choose to buy.
Planning for when no rent is coming in
When you plan to apply for a Buy to Let Mortgage, it’s important to consider how you’ll maintain the mortgage payments throughout periods of property vacancy. Whilst they can provide a stable income, all rental properties are vacant at times, for example, during renovation or whilst you are waiting to find tenants.
High end rental protection policies are a sensible way to cover repayments on your mortgage when your rental income is lacking. Most will cover property vacancies which result from a wide variety of circumstances.
Ensure you have the final lump sum covered
Although it’s quite standard practice for landlords to pay off the final lump sum at the end of their mortgage by selling their rental property. Whilst this can be a reasonable repayment option, there are many situations where it won’t be viable.
It’s important, therefore, to have a backup plan in place. There are a variety of reasons that selling your rental property might not be an option, from a lower than anticipated sale price, to a slow market, meaning you don’t sell it in time to repay the loan.
The tax implications of owning a Buy to Let Property
There are a number of tax implication to consider before you decide to become a landlord, such as:
- If you own more than one property, there is an extra 3% Stamp Duty requirement on each additional property
- You are liable for income tax on all earnings from your rental property(ies)
- When you sell your rental properties, you’ll have to pay both capital gains and income tax on any profit you make
As a landlord, you are able to get tax relief on some of the costs involved in property rental so long as you’re a standard rate tax payer; these include property repairs, council tax and utilities (that you pay), letting agency and other property management fees.
How can a Mortgage Broker help me to find the right Buy to Let mortgage?
Buy to Let Mortgages are available from both high street and specialist mortgage lenders, however, choosing the most suitable mortgage offer for you can be confusing. In order to achieve optimal profit from your Buy to Let property, it’s important to get mortgage rates that work for you. At Heritage, our knowledgeable brokers can help you to secure a mortgage deal to suit you, whatever your circumstances.