Buy to Let Mortgages
What is a Buy to Let mortgage?
Buy to Let Mortgages are a mortgage that is used on a property that you own, but to rent the property out to an individual or family. The overall target is to achieve a good return on investment through rental income on the property.
What is the difference between a Buy to Let mortgage and a residential mortgage?
The key difference is that residential mortgages are regulated as that’s the main home you will be living in, whereas the Buy to Let Mortgages are not regulated as it’s there just for investment purposes to make rental income.
How is a personal Buy to Let different to a Limited Company Buy to Let?
I would suggest you seek tax advice from a qualified accountant if you’re looking at a Limited Company Buy to Let as they can advise which avenue to go down.
However, some people wish to grow their portfolio of properties who are a higher rate taxpayer due to the extra tax benefits in the long term. But if you’re looking to grow your portfolio by one or two properties then a personal Buy to Let is better due to the rates being less and you would make more money on your return on investment.
Who can get a BTL Mortgage?
There are plenty of myths out there that if you’re a first-time buyer and you don’t own your property you can’t get a Buy to Let Mortgage, that is incorrect as anyone can take out a Buy to Let Mortgage, providing they’re over the age of 18, have a good credit score and affordability, like any mortgage. Also, by going through a broker we can look at the Whole of Market to access better rates through different lenders.
How much can you borrow on a BTL Mortgage?
A Buy to Let Mortgage is very different to your standard residential mortgage. So borrowing can vary as it’s based on the rental income on the house. The lender will complete a stress test that includes the rental income and your tax status for example. You might find if there’s a shortfall on your mortgage the rental income may be used to bridge the gap.
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What deposit do I need for a Buy to Let mortgage?
On average it’s normally a 25% deposit on a Buy to Let Mortgage, but again it’ll vary and depend on the rental income on the property. It’s always worth speaking to a mortgage broker to go through your options and calculations to see full how much you can put down.
What are the criteria for a Buy to Let mortgage?
There are no real set criteria to a Buy to Let Mortgage except for the 25% minimum deposit and meeting the age requirements. In the market there are plenty of lenders which we can guide you through, some may have the condition that you have to be a residential homeowner or earn a set yearly income such as £25,000. It all varies depending on the lender so a broker can help you with this.
Is it illegal to rent out a house without a Buy to Let mortgage?
You should not be renting out a house if you’re not living in it with a Buy to Let Mortgage, however, you can rent out a portion of your property as long as you meet the maximum percentage allowance. You can rent a room out, but not a whole house without having a Buy to Let Mortgage.
Is it illegal to live in your Buy to Let property?
Yes, it does breach the lender criteria as is the property is there for an investment purpose, unless it is someone you know, but do not have a relationship with.
Interest-only versus repayment on a Buy to Let mortgage?
You would normally go for a repayment mortgage on your residential property to bring down the capital. However, investors prefer to have an interest-only product because they can maximise their rental income each month. For example, you may rent your property out for £1000 per month, but your mortgage may be £300 per month, so you will be £700 extra per month which will be your overall income.
Do I need a solicitor for Buy to Let?
Absolutely! Like with any mortgage, a solicitor is needed for conveyancing purposes, so there’s no difference between Buy to Let and Residential Mortgages.
How many Buy to Let properties can I own?
There is no real cap on how many properties you can own. Legislation changes when you own 5 or more properties as you become a portfolio landlord so lenders will look at you differently due to the amount of income you’re receiving.
As a broker, we have plenty of clients with one particular client owning 29 properties in their portfolio. When it gets to that level of properties you might look at a blanket loan which covers a set amount of properties, compared to the one Buy to Let Mortgage for one property.
How can a Mortgage Broker help?/ Anything else we need to know?
As with any Buy to Let Mortgage, you will have the additional stamp rate duty. So it’s not your normal residential stamp duty rate where you might pay 5% on a property over £500,000, with a Buy to Let, it would be 8% on any purchase with the current reduced rates.
Your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate some Buy to Let Mortgages.