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Buy to Let Mortgages Explained
Who can get a Buy to Let mortgage?
A Buy to Let mortgage is required by anyone purchasing a residential property that they plan to let for profit. Applicants are subjected to stricter acceptance criteria than those applying for a standard residential mortgage.
How do BTL Mortgages Work?
Whilst Buy to Let mortgages tend to be interest only, rather than repayment, they work largely the same way that a traditional residential mortgage, although mortgage rates are likely to be higher.
There are two major differences from standard residential mortgages, however:
- Buy to Let mortgages are not regulated by the Financial Conduct Authority unless they will be solely inhabited by your close family members.
- Lenders calculate the loan amount based on the potential rental yield (income from the property), rather than your income and affordability, although they may carry out stress tests on your personal finances.
How much can you borrow on a BTL Mortgage?
The amount will be dependent upon the average rental yield expected from a property of the same size and in a similar area. Most lenders will want the rental yield to be at least 25% more than your monthly mortgage payments.
Planning for when there is no rent coming in
Although Buy to Let properties can provide a stable income, it’s important to realise that they will not always earn profit. There are a range of reasons why your property could be vacant and therefore you will have to plan to cover the mortgage repayments for this duration.
If you don’t have savings or income to cover periods of property vacancy, it’s important to consider a rental protection policy. Some of the higher end policies cover property vacancy.
Speak To An Expert
We’re able to tap into our local knowledge to guide you through your house purchase in your chosen area.
Don’t rely on selling your property to repay the mortgage
Most landlords sell their Buy to Let property at the end of the mortgage term in order to pay the final lump sum payment on the mortgage. If you opt for the more popular interest only mortgage option, this is something you will need to consider.
As the property market can be unpredictable, the value of your property or even it’s sale, cannot always be guaranteed. Saving or investing a percentage of your rental income towards the final mortgage cost is a good safety measure.
Buy to Let tax implications and advantages
There are a number of tax implications to consider when purchasing a Buy to Let property:
- You are liable for 3% higher stamp duty than on standard residential properties
- Capital gains tax is payable when you sell the property
- Income tax will be due on all rental income, as well as any profits from the sale of your property
There is also a small advantage, in that you get tax relief on some of the costs associated with being a landlord, against your rental income. For example; property repairs, property management or letting agent fees and council tax or utility bills (where you pay for them) can all be reclaimed on your tax return.
Where can you get a Buy to Let mortgage from?
There are a wide variety of Buy to Let mortgages available through both high street and specialist mortgage lenders.
Finding the lender most suited to your circumstances is not always straightforward, particularly if you’re new to Buy to Let properties. It’s therefore a good idea to talk to a Mortgage Broker for further advice.
How can a Mortgage Broker help?
Mortgage Brokers have access to a broad variety of both high street and independent lenders, meaning they have access to a wider range of mortgage deals than the average applicant. Finding a competitive deal can have a significant impact on the success of your Buy to Let earnings.
Mortgage Lenders can also take much of the stress out of the mortgage application process, by dealing with the administrative aspects on your behalf. Their experience and broad access means that they can help you find, not only the most suitable lender for you, but those that are most likely to accept your application.
Buy to Let mortgages are not regulated by the Financial Conduct Authority.
Debt consolidation is not always the most suitable option, consolidating debts must be carefully considered. It will usually mean more interest over a longer repayment term and there may also be early repayment penalties on your current mortgage, you should think carefully before securing other debts against your home. There are other ways to manage debt such as free debt advice charities, you can find out more by contacting the Money Advice Service https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator these services may be more suitable for you.
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
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