It’s much easier to acquire a buy-to-let mortgage if you already own your own home, even if you have an outstanding mortgage on it. To qualify you also need to earn at least £25,000 per annum. If you have a good credit history and have not over-committed yourself on your existing mortgage, credit cards, or any other debts, a mortgage company will more than likely approve your application.
Mortgage lenders work on a 20- or 25-year mortgage and don’t loan to anyone who’s aged 70 or above. It’s a good idea to check first whether a mortgage company will approve your buy-to-let loan before you go house-hunting or make an offer on a property.
How Does aBuy-to-let Mortgage Work?
Although very similar to a regular mortgage on your home, a loan for a buy-to-let property has some key differences:
1. They attract a higher rate of interest
There’s a minimum deposit you have to pay that amounts to one-quarter, or 25%, of the value of the property. However, this can vary depending on the loan company – some will accept 20% while others demand as much as 40%.
The mortgage fees for a buy-to-let property are much higher than the fees for a standard mortgage.
In almost all cases, a buy-to-let mortgage is interest-only, which means the amount you pay the mortgage company each month goes towards the interest on the loan rather than the capital sum. Once you’ve come to the end of the term of the mortgage then you have repaythe capital in full.
Ordinary mortgages are regulated by the Financial Conduct Authority (FCA), but in most cases buy-to-let mortgages are not, and are therefore unregulated. So be careful who you approach for a buy-to-let loan. Try to find a lender whoi FCA-authorised, as they are expected to treat all mortgage customers fairly. And if you do experience any problems, or have any issues with a particular mortgage company, the Financial Ombudsman Service will hear your complaint.
How Much Can I Borrow?
The maximum amount you can borrow is directly linked to the amount of rent you charge a tenant. Mortgage companies normally insist that the rental income is at least 25% or 30% more than your mortgage repayment.
Where Can I Get a Buy-to-let Mortgage?
There are a number of specialist buy-to-let mortgage providers but most of the large banks can also help. You might also want to talk to a mortgage broker as they can offer advice and help you choose the most suitable mortgage deal. To find a broker in your area, goto https://www.unbiased.co.uk. And for buy-to-let mortgage information, you can visit the following websites: Moneyfacts, Which?, MoneySuperMarket, and MoneySavingExpert.
From the 1st April 2016, government has increased the Stamp Duty Land Tax for buy-to-let residential properties above £40,000 to an extra 3% on top of the current rate.
Buy-to-let Properties and the Tax You Pay
Capital Gains Tax is payable by anyone who makes a profit from the sale of a buy-to-let property where the profit exceeds the annual Capital Gains Tax threshold. Likewise, income tax is payable on any rental income that exceeds the mortgage interest payments.
Some Buy-to-let Tips
· Plan for the Bad Times
There will be times when the flat or house you’re renting becomes unoccupied, or the rent is not being paid for one reason or another, so make sure you have enough money in the bank to cover your monthly mortgage payments. Try to plan for these times and don’t assume the property will always have tenants.You should also plan for the cost of repairs to the property – a new boiler, washing machine, plumbing problems, or blocked drains, and have some money put aside for these times.
· Don’t Rely on Selling Your Property to Repay Your Mortgage
Many people who have buy-to-let loans think if they sell their property they can then pay back the amount owing on the mortgage. Don’t fall into this trap, because property prices can fall and if they do you might not be able to sell for more than you owe on the mortgage … and this means you’ll have to find the money to pay for any shortfall.
Article provided by Sara Bryant, an independent content writer working alongside a selection of companies including Tim Greenwood and Associates, who were consulted over this post.