Who can get a Buy to Let mortgage?
Buy to Let mortgages are for those who wish to buy a property to rent. To qualify for a Buy to Let mortgage, you will have to fulfil certain criteria, just as with a regular mortgage.
It helps to secure a Buy to Let mortgage if you can show strong financial viability or you already own your own property. Most lenders will require you to earn over £25,000 per year and have a strong credit file. However, there are some lenders who will accept lower or no income requirements
How do Buy to Let mortgages work?
Buy to Let mortgages work in much the same way as ordinary mortgages, but there are some key differences. The fees on Buy to Let mortgages are much higher, as are the interest rates. The minimum deposit for a Buy to Let mortgage is also higher, usually 25%.
Buy to Let mortgages are always interest-only, this means you only pay the interest every month, not the capital amount. It makes your monthly premium much lower, but you will have to pay the outstanding capital at the end of the agreement.
How much can you borrow on a Buy to Let mortgage?
The amount you can borrow is determined by how much rental income you expect to receive. This can be estimated by researching similar properties in the area, contacting agencies, and checking online listings.
Typically, lenders will expect your rental income to be 25-30% higher than your monthly mortgage premium. This is to facilitate payment of the capital sum at the end of the agreement. When you have worked out the rental income for the mortgage period, subtract around 30% for an estimate.
Where can you get a Buy to Let mortgage from and how a Mortgage Broker can help?
If you’re interested in taking out a Buy to Let mortgage, contact your bank and research mortgage lenders online. The majority of major financial institutions offer this type of mortgage, as well as some specialist lenders.
To avoid disappointment and ensure you land the most suitable Buy to Let deal for your circumstances, consider talking to a Mortgage Broker. A Mortgage Broker will have a good idea of property prices and suitable lenders for you.
Planning for when there is no rent coming in
You may risk your financial security if you assume you will always have rent coming in. Instead, you need to plan ahead for times when you have no tenants.
To cover the rent during these times, you will need a financial cushion or savings from previous tenants. You will also need these savings for unexpected expenses such as a broken boiler or a burst pipe.
Don’t rely on selling a property to repay the mortgage
If you’re lucky, the house price will rise, and you can sell it and pay off the mortgage; however, you cannot rely on this situation. There is a possibility that the property will drop in price and slide into negative equity. If this is the case, you will not sell the house for as much as you expect and may have to make up the difference on the mortgage.
Buy to Let tax implications and advantages
Capital Gains Tax is usually charged at 18% on Buy to Let properties. Any gains made from your property should be cited on your self-assessment tax return. In relation to income tax, it’s possible to offset your rental income against allowable expenses. You will also receive mortgage interest tax relief in the form of a 20% tax credit.