We may live in an ever-changing world, but one thing remains consistent – property will always be a solid investment. The security of bricks and mortar is an attractive proposition for many would-be investors. After all, there are no fluctuations in line with the stock market and no concerns about how changing global economies could impact your bottom line.
Whether you are a novice investor, an accidental landlord, or seeking to add to your property portfolio, you need to understand the implications of buy-to-let mortgages.
At Mortgagemove, we work closely with would-be investors to help them understand how they can maximise their investment in the UK property market. Our advisors have expert knowledge and understanding of the buy-to-let property sector. We can use our network of mortgage lenders to find the right mortgaging solution for you.
Our advisors are here to answer any question you may have – all you need to do is get in touch. by calling our freephone advice line: 0333 005 0333
What is a buy-to-let mortgage?
A buy-to-let mortgage is a specific type of mortgage designed with the needs of investors in mind. A buy-to-let option is specifically for people who purchase a property intending to rent it out. The mortgage holder becomes a landlord and collects rent from their tenants.
Typically, most buy-to-let mortgages are offered on an interest-only basis. This means that you will not repay any of the capital on the property, just the interest payments. Therefore, buy-to-let investors need to have a plan to pay off the capital purchase of the property at the end of the mortgage term.
If you live in your current property and intend to rent it out due to a change in circumstances, you may need to seek permission from your current lender for a “consent-to-let.” This may change the terms of your mortgage to a BTL option. You must inform your lender of any proposed changes to confirm that you are adhering to their terms and conditions.
Who can benefit from a buy-to-let mortgage?
One of the reasons why so many people are drawn to property investment is because it is accessible to all. You may have come into an unexpected windfall and want to secure your money in property, or you may be looking to increase your investment through a savvy property portfolio.
BTL mortgages are typically offered to those who fit the following criteria.
- You already own your own home (either mortgaged or owned outright)
- You have a good credit rating
- You can afford a deposit of between 20-40%
- You have a minimum annual income of £25,000
- You will be under the age of 75 at the end of your mortgage term
You can still benefit from a buy-to-let mortgage if you don’t fit any of the above, however, you will have fewer lenders to choose from.
What are the affordability criteria for a buy-to-let mortgage?
Mortgage lenders often see buy-to-let mortgages as a riskier investment compared to typical residential mortgages.
Typically, most buy-to-let financing solutions require a minimum 20% deposit. However, many lenders offer better interest rates to those with a 40% deposit. You may also find that arrangement fees and interest rates are far higher than standard mortgages. A core part of our work at Mortgagemove is to identify the best possible buy-to-let mortgage deal that works with your budget.
Beyond your mortgage lender fees, you should also consider any other costs that you may incur. This could include letting agency fees, landlord insurance, income tax, or capital gains tax. You should also set aside funds for general property maintenance costs.
You will need to check your personal tax position with an independent tax adviser.
What are the tax implications of a buy-to-let mortgage?
In recent years, HMRC has tightened up the tax relief for those purchasing properties for investment purposes.
Current rules mean that purchasers need to pay a 3% Stamp Duty Land Tax surcharge if they already own a property in their name (even if the purchase is via a limited company).
You may also have to pay a capital gains tax bill if you sell your property to make a profit.
It is also worth noting that you cannot offset a proportion of your rental income against general wear and tear to reduce your tax bill.
The tax implications of buy-to-let mortgages are complex. Therefore, we recommend that you should always take advice from a qualified property tax specialist.
Can you prepare for times when there is no rent?
Although it is possible to make a living from renting out a property, it is a risky business. As we mentioned, your BTL mortgage is likely to be an interest-only repayment. Most landlords use the money from rent to pay their mortgages. You should have a contingency plan to help you manage your repayments if you do not have tenants or your existing tenants fall behind with the rent. You also need to consider how you plan to repay the capital of your property at the end of your mortgage term.
As a landlord, you cannot assume that you will always have a continuous flow of tenants. There may be many reasons why your rental property may stand empty. It would help if you had enough cash flow to ensure that you can continue to make your BTL mortgage repayments when you do not have any rental income coming in.
Mortgagemove can help you to find the right buy-to-let mortgage for your needs
At Mortgagemove, we work closely with our clients to identify the right buy-to-let mortgage for your needs. We take the time to listen closely to you. You might be an experienced investor, or you could be new to the rental property market. Whatever your circumstances, we can offer independent advice and support, helping you make the most of your investment.
Our team of expert advisors will guide you through each stage of your mortgage application. With a network of contacts across the UK, we are confident that we can find the right mortgage lender for you.
Some buy-to-let mortgages may not be regulated by the Financial Conduct Authority (FCA).
To find out more about how we work, please get in touch by calling our freephone advice line: 0333 005 0333