Buy-To-Let Mortgages 1st Apr 2015
Buy-to-let (BTL) mortgages are for landlords who buy property specifically to rent out and they can help you become, or profit further from becoming, a property investor. We set out below key things to think about when considering buy-to-let mortgages.
Who can get a buy-to-let mortgage?
Buy-to-let mortgages are only suitable for people who want to invest in houses and flats. Investing in property is risky, so you shouldn’t take out a BTL mortgage if you can’t afford to take that risk.
You’ll struggle to get a buy-to-let mortgage if you don’t already own your own home, whether outright or with an outstanding mortgage. You must have a good credit record and not be stretched too much on your other borrowings such as your existing mortgage and credit cards. And you are likely to find it harder to get a buy-to-let mortgage unless you earn at least £25,000 a year.
Lenders will have their own upper age limits – typically between 70 or 75. This is the oldest you can be when the mortgage ends not when it starts. For example, if you are 45 when you take out a 25-year mortgage it will finish when you’re 70.
How do buy-to-let mortgages work?
Buy-to-let mortgages are in many ways just like ordinary mortgages, but with some key differences:
• Interest rates on buy-to-let mortgages tend to be higher
• The minimum deposit for a buy-to-let mortgage is usually a quarter (25%) of the property’s value (some lenders offer deals with a 20% deposit, others want a 40% deposit)
• The fees tend to be much higher
Most BTL mortgages are interest-only, which means you don’t pay anything off the lump sum borrowed each month instead at the end of the mortgage term you repay the capital in full.
Unlike obtaining a mortgage on a property you wish to live in, BTL mortgage lending is not regulated by the Financial Conduct Authority (FCA) unless you wish to let the property to a close family member (e.g. spouse, civil partner, child, grandparent, parent or sibling). This means that most BTL mortgages are unregulated. However, if the lender is FCA authorised, it will be expected to treat you fairly. If you are unhappy with any issues dealing with such a lender, you can make a complaint to the Financial Ombudsman Service.
How much you can you borrow for buy-to-let mortgages?
The maximum you can borrow is linked to the amount of rental income you expect to receive. Lenders typically need the rental income to be a quarter to a third higher than your mortgage payment (25–35%).
Don’t forget to budget for all of the costs associated with taking out a mortgage.
To find out what property prices are and what estimated rent you might achieve, talk to The Key Place.
Where you can get a buy-to-let mortgage?
Most of the big banks and a number of specialist lenders offer BTL mortgages.
It’s a good idea to talk to a mortgage broker before you take out a buy-to-let mortgage, as they will help you choose the most suitable deal for you.
To find a mortgage adviser, talk to The Key Place.
Plan for times when there’s no rent coming in.
Don’t assume that your property will always have tenants. There will almost certainly be ‘voids’ when the property is unoccupied or rent isn’t paid, and you’ll need to have a financial ‘cushion’ to draw on to meet your mortgage payments. When you do have rent coming in, use some of it to top up your savings account.
You might also need savings for major repair bills – for example the boiler might break down or there may be a blocked drain.
Don’t rely on selling the property to repay the mortgage
Don’t fall into the trap of assuming you’ll be able to sell the property to repay the mortgage – if house prices fall, you might not be able to sell for as much as you had hoped. If this happens, you’ll be left to make up the difference on the mortgage.
Buy-to-let and tax
If you sell your buy-to-let property for profit, you will pay Capital Gains Tax if your gains in that year exceed the annual Capital Gains Tax threshold. Also, rental income that exceeds your mortgage interest payments and certain allowable expenses are liable to
To find out more about the tax implications of buy-to-let investing, talk to The Key Place.