Buy To Let
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If you plan to purchase a residential property in order to rent it out and earn profit, a Buy to Let Mortgage will be necessary. As a landlord, you will not be able to live in the property once a Buy to Let mortgage is in place. If you choose to let out a residential property that you already own and have lived in, it can be possible to convert a Standard Residential mortgage into a Buy to Let mortgage, if your Mortgage Lender allows for this.
Who can get a Buy to Let Mortgage?
As with any type of mortgage application, each mortgage lender has their own criteria when it comes to underwriting a mortgage application. Every scenario is different and this is why it is advantageous to consult with a specialist broker in order to secure the most appropriate deal.
We have helped people obtain a buy to let mortgage, even in the following circumstances:
- Most lenders like you to own the property you live in when applying for a buy-to-let mortgage. However, we can help people living in rented accommodation (non-owner occupier)
- Even though some lenders have minimum income requirements up to £25,000, we’re able to access Buy to Let mortgages with no minimum income requirements
- Despite the fact many lenders like you to have a good credit profile when applying for a Buy to Let mortgage, we have arranged Buy to Let mortgages for people with previous credit problems, such as Missed Payments, Defaults or CJJs
- Although some mortgage providers may have a cap on the age you need to be under at the end of the mortgage term, we work with lenders that don’t set these restrictions
- While it is often a requirement that you need to be an experienced landlord to apply for a Buy to Let mortgage, we work with a number of lenders who are happy to consider an application from first time landlords
How does a Buy to Let Mortgage differ from a Standard Residential Mortgage?
Buy to Let mortgages work largely the same as other mortgage types, however, there are a few ways in which they differ:
- Most lenders will offer a maximum Loan to Value ratio of 75% (although we are able to secure Buy to Let mortgage products with as little as 15% deposit)
- Associated fees tend to be higher than they are for other mortgages
- Interest rates are generally higher than standard residential mortgage products
- Buy to Let Mortgages which are taken out for the sole purpose of business are not regulated by the Financial Conduct Authority
How much can you borrow with a Buy to Let Mortgage?
Another way in which Buy to Let Mortgages differ from other mortgages is in the way that they are calculated. Lenders will base loans on the potential rental yield (income). This means that it is possible to purchase properties that are outside of your normal scope of affordability.
A rental yield of between 125% and 145% of your mortgage payments will usually be sought by lenders offering Buy to Let mortgages, so it’s important to research the rental potential of each property prior to your application.
What is Top Slicing?
Top Slicing is where a Buy to Let mortgage provider can use the applicant’s personal income to make up any shortfall, if the rent the property generates does not satisfy the lender’s stress testing. This option is not available with all mortgage providers.
Planning for when no rent is coming in
It’s important to consider that your property will not always be profitable, for example, throughout any renovation periods required and whilst it’s vacant, between tenants. To ensure that you are able to maintain mortgage repayments during these periods, it’s worth investing in property protection insurance or landlord’s insurance.
Ensure you can repay the loan at the end of the mortgage term
It’s common practice to sell Buy to Let properties once an Interest-only mortgage term has finished, in order to pay off the outstanding loan amount. Whilst this can be an efficient repayment option, it’s important to consider that it won’t be possible in every circumstance.
A slow sale or a lower than anticipated sale price could mean that you don’t sell the property in time or generate enough money to repay your full loan. Another investment or savings plan which can be used as a backup in this situation, is therefore recommended.
The Tax Implications of owning a Buy to Let Property
There are tax implications that you should be aware of when taking on a Buy to Let property:
- An extra 3% Stamp Duty fee is due on each property you own in addition to your own residential home
- You may need to pay income tax on any earnings from your rental property / properties
- When you sell your property, Capital Gains Tax may due on profits from the sale
If you’re a standard rate tax payer, it’s possible that you can claim tax relief on your rental income against landlord related costs. This includes letting agent fees, property repairs and council tax and utility bills, where you pay for these personally.
How can Fifty Nine Financial help?
Here at Fifty Nine Financial, our Mortgage Brokers can help you to find which Buy to Let Mortgage is the most suited to your needs. We understand that the right Buy to Let Mortgage can be critical to maximising your earning potential and we’re keen to ensure that you achieve your long term financial goals, as a landlord.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.