Buy To Let Mortgage
If you’re planning to purchase a property to rent out for profit, then you’ll need a Buy to Let mortgage. It’s illegal to rent out your home if you have a standard residential mortgage without consent from your lender, but it is sometimes possible to convert your mortgage type.
If you plan to apply for a Buy to Let mortgage, you should be ready to be subjected to additional acceptance criteria to a residential mortgage application. Whilst the exact criteria will vary slightly from lender to lender, it’s very likely that you will:
You may need to own a residential property (a mortgage is fine, it doesn’t need to be outright)
Have a salary of at least £25,000 (Not all lenders have a minimum, but most do)
Maintain a good credit score
Need to repay the mortgage fully between the ages of 70-75
How do Buy to Let Mortgages Work?
Most Buy to Let mortgages are arranged as interest only, rather than repayment. The interest rates are higher than they are for other types of mortgage and you’ll need a minimum deposit of 25%.
How much can you borrow on a Buy to Let Mortgage?
With a Buy to Let mortgage, your lender will calculate the loan on the potential rental yield (income) from your chosen property. Whilst stress tests are usually carried out on your ability to afford the repayments, your personal income will not determine the amount you can borrow on a Buy to Let property. Lenders will want the rental yield from your chosen property to equal at least 125% of the monthly repayments. It’s therefore a good idea to look at local average rents in the area you are looking to buy and on similar property types to your Buy to Let property.
Consider a Backup Plan to Cover the Final Repayment
If you take out the interest only Buy to Let mortgage, always keep in mind how you’ll pay off the final lump sum. Most landlords plan to sell their rental property to cover this, which is a great option. There are situations, where this method will not be possible.
If your rental property takes a long time to sell, or a market crash means that it has decreased in value, it may not be possible to pay off the mortgage this way. Savings or investments are a good back up plan and could help avoid a difficult situation at the end of your mortgage term.
Tax Implications of a Buy to Let Property
Before you make a final decision about entering the Buy to Let property market, you should be aware of the additional tax implications incurred:
3% higher stamp duty will be due on your Buy to Let property than on residential properties
Income tax is payable on both your rental income and any profits from the sale of your property, should you sell it
Capital gains tax is payable when you sell the property
You are entitled to tax relief on certain aspects of the properties upkeep. For example; property repairs, letting agent fees and council tax. You should also take into consideration, that the additional income will affect your overall tax band too. We advise you to always seek advice from a tax specialist.
Where can you get a Buy to Let Mortgage from?
Both high street lenders and specialist mortgage providers offer buy to let mortgages. Finding the right lender, however, can be time consuming and difficult, therefore allow Manor Holmes take that stress from you and source the most suitable Buy to Let Mortgage Product for you.
The Financial Conduct Authority does not regulate some forms of Buy to Lets.