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Expert Advice on Buy to Let Investments & Mortgages
If you have property that you want to rent out and want to become a landlord, you will need to get a buy-to-let (BTL) mortgage. Whilst there are similarities between BTL and normal, residential mortgages that are some key differences between the two.
Scroll down to read more about Buy to Let mortgages or get in touch today to speak to a Buy to Let specialist.
Can Anyone Get a BTL Mortgage?
No. There are a number of criteria that you will need to meet before becoming a landlord.
- First and foremost, you need to ensure that you can afford to take the risk of property investment. There will be periods of time where your property won’t have a tenant and you will be responsible for repairs, so you need to be sure that you are financially capable.
- Your credit score is also massively important, as it is when you apply for a residential mortgage, so you’ll need to be sure that your report is positive and reflects well on your spending and money management by not doing things like maxing out credit cards and missing payments.
- Your salary and age are also important. Ideally, you need to be earning a minimum of £25,000 per year and be under the age of 75 when the mortgage will potentially end, otherwise you may struggle to find a lender to process your mortgage. For example, if you’re 35 years-old at the time of application and take out a 35-year mortgage, you will be 70 years-old when the mortgage finishes.
How Do Buy to Let Mortgages Work?
First of all, the fees on buy-to-let mortgages are usually much higher than they would be on a residential mortgage, and so are the interest rates. Most mortgages of this type are also interest-only, too. This means that when you make your mortgage payment, you will only be paying off the interest each month – not the mortgage itself. You will have to pay the capital, or actual mortgage amount off at the end of the term.
This does have some benefits. Interest-only monthly payments are cheaper than your usual repayment mortgage payments, and you can usually offset a certain percentage of the mortgage interest against your tax bill. The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value, although it can vary between 20-40%, and despite buy-to-let mortgages being unregulated by the Financial Conduct Authority, there are exceptions if you want to let the property to a family member, for example.
How Much Can I Borrow for a Buy-to-Let Mortgage?
This all boils down to the amount of rental income that you’re expecting to receive from the tenants of the property. Usually, the income needs to be at least 25-30% higher than what you’re paying for the mortgage. To determine what your rent will be, you will need to talk to local letting agents or do your own research by looking at similar properties online.
Don’t compare what you can borrow on a buy-to-let mortgage to what you would be able to borrow on a residential mortgage. The rates of buy-to-let mortgages are often much higher as property investment is perceived as a greater risk to lenders, meaning your borrowing power for a buy-to-let mortgage will be lower.
Where Can I Get a Buy-to-Let Mortgage?
Most high-street banks and specialist lenders offer buy-to-let mortgages. However, with it being such a complex area, it’s best that you talk to a mortgage broker that has access a wide panel of lenders to get the most suitable deal for your circumstances.
Will there be Time when I have no Tenants in my Property?
Unfortunately, that’s one of the risks involved in buy-to-let mortgages – there are going to be times when you have no rental income. To prevent you from falling behind with your buy-to-let mortgage payments, you will need to ensure that when you do have rental payments coming in, you put some of it away as you may need a financial cushion for any voids in payment or needed repairs.
What About Stamp Duty?
For buy-to-let properties, Stamp Duty Land Tax (SDLT) is an additional 3% on top of the usual SDLT rate bands for properties above £40,000. It is important, however, that you avoid the temptation of assuming that you’ll simply be able to sell your property to repay the mortgage as it’s a dangerous game to play. If house prices fall, for example, you won’t be able to sell it for as much as you originally thought and, if this happens, you’ll have to make up the difference on the mortgage.
What are the Tax Implications with Buy-to-Let Mortgages?
There could be. If you sell your buy-to-let property and make a profit, you will be liable to pay Capital Gains Tax (CGT) if your profit exceeds certain thresholds. And if your rental income that exceeds your mortgage interest payments and many allowable expenses are also liable to income tax. This is just the tip of the iceberg when it comes to buy-to-let mortgages, so if you’re thinking about becoming a landlord, get in touch with our expert advisers and they will be able to walk you through the next steps.