Buy to Let Mortgages

WHY BUY TO LET?

Buy to let mortgages are (In most cases), a specialist mortgage for those who will not be domicile in the property they have mortgaged, but will instead let it out for a profit, but there are other cases where you may want to secure a buy to let mortgage.

You wish to buy a property to generate income as a rental.

Your residential mortgage deal is coming to an end, and you wish to rent out your own home.

You want to buy a property to rent out to a family member.

Here at Mortgage Lolly – we have been helping our clients wishing to purchase property for commercial purposes, or to let to family members for over 25 years, and are experienced with dealing with all of the intricacies and stipulations required to secure a buy-to-let Mortgage. Talk to us now to find out whether you qualify.

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Legal Notice: The Financial Conduct Authority do not regulate buy to let mortgages.

WHAT ARE THE DIFFERENCES?

If you want to secure a Buy to let mortgage there are some key differences to a Residential Mortgage that may affect a lender’s willingness to offer. Mortgage Lolly can offer you free independent advice on how to negotiate on all the following criteria.

Rental income

the potential rental income you can realise will have a large impact on the amount you can borrow. Most Lenders will want to see potential rental incomes 25-30% higher than your repayments.

Other income

if a lender isn’t satisfied with the borrowing level to potential rental income ratio, they may require you to have other income. Typically this bar is set around £25,000+ a year.

Fees

the fees to set up a buy to let are generally much higher.

Interest Rates

due to perceived risk ( as properties could remain vacant for periods) interest rates tend to be higher.

Deposit levels

The usual minimum deposit required is 25% – however it can vary in practice between 20-40%

Experience

Some lenders will be unlikely to lend if you have not been a landlord before.

Other Properties

Most lenders will impose a maximum limit on the number of buy-to-let properties one borrower can mortgage, – in most cases this is four.

Regulation

Most BTL mortgages are not regulated by the FCA (Financial Conduct Authority) – except in cases where the property is being let to a close family member, (spouse, partner, child, parent, grandparent or sibling – these are considered a ‘consumer buy-to-let’ and are assessed in the same way as a residential mortgage.

TYPES OF BUY TO LET MORTGAGE

Fixed rate: Your repayments stay the same price for a specified term. Provides the certainty of knowing the cost of your repayments for a set time. Interest might be higher, especially on mortgages with a longer term.

Variable rate: The cost of your repayments will vary, depending on the Bank of England base rate or the lender’s own rate. You might find lower interest rates than those offered on a fixed term. If interest rates rise, so will the cost of your repayments. Even a small rise in interest could add a lot to your monthly repayments.

Interest only: Your repayments will only cover the cost of the interest. When the mortgage term ends, you’ll be expected to pay back the amount you originally borrowed (the capital).

Lower monthly payments, as you’re only paying the interest: More flexibility to make overpayments at times you have more money available. You’ll have to pay off the capital amount eventually, so you’ll need to remember to set aside the means to do so. Landlords can no longer deduct the cost of their mortgage interest from their rental income. This means that higher and additional rate taxpayers won’t get as much tax relief on interest-only mortgages as they did previously.

Repayment: You repay the amount you borrowed and the interest each month. You’ll usually pay less overall, as the amount you owe decreases with each repayment. Repayments will be higher as you’re paying off the capital and the interest.

AM I ELIGIBLE FOR A BUY TO LET?

Your Credit History : all remortgages will be subject to an affordability check by the lender.

BTL Property Value The value of your property you wish to mortgage to let will have an impact on the viability of the loan to the prospective lender.

Value of your residential property : Many lenders will now allow you to mortage a buy-to-let property with a higher value than your residential mortgage.

Age : Lenders typically have age limits of 70-75 years for end of the mortgage term – which limits the maximum age you can start.

CONTACT US TODAY FOR FEE FREE ADVICE ON YOUR ELIGIBILITY

WHAT ELSE DO I NEED TO KNOW?

We encourage you to contact us to get fee-free independent advice on buy-to-let mortgages, but consider the following. Capital Gains Tax – If you’re a basic rate tax-payer, CGT on buy to let second properties is charged at 18% and if you’re a higher or additional rate tax payer it’s charged at 28%. With other assets, the basic-rate of CGT is 10%, and the higher-rate is 20%. Couples who jointly own assets can combine this allowance, potentially allowing a gain of £24,600 (2021-22) in a tax year. Income Tax The income you receive as rent is liable for income tax. This should be declared on your Self Assessment tax return for the tax year it was earned in.

This might be taxed at 20%, 40% or 45%, depending on your income tax band.

You can offset your rental income against certain allowable expenses, for example, letting agent fees, property maintenance and Council Tax.

Mortgage Interest Tax Relief – Landlords are no longer able to deduct mortgage interest from rental income to reduce the tax they pay. You’ll now receive a tax credit based on 20% of the interest element of your mortgage payments. This rule change could mean that you’ll pay a lot more in tax than you might have done before.

Plan for vacancy – Assuming that your property will always have tenants is a recipe for disaster, there will inevitably be periods of inoccupancy, or when rent is not paid on time it is prudent to top up your savings account when rent is coming in.

If it seems like there’s like a lot to consider – it’s because there is – some brokers will charge you for advice, but here at Mortgage Lolly we are Fee Free.

TALK TO US TODAY – FOR FEE FREE ADVICE – START YOUR JOURNEY TOWARDS A SUCCESSFUL BUY-TO-LET MORTAGE APPLICATION.