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Everything you Need to Know About Buy to Let Mortgages
Who can get a Buy to Let mortgage?
If you plan to buy a property to rent out for profit, you’ll need a Buy to Let mortgage. You’re not allowed to live in a property when you’ve purchased it as a Buy to Let, although it is sometimes possible to transfer a standard residential mortgage into a Buy to Let mortgage if you decide to rent out your own home.
Buy to Let mortgages have quite strict acceptance criteria, which you will need to satisfy. For example, in the majority of cases you will need to be an owner occupier in order to be considered.
Although the loan is not primarily assessed on your personal income, some lenders will require a salary of at least £25,000 and a good credit score.
How do Buy to Let mortgages work?
Most Buy to Let mortgages are interest-only, meaning the payments are much lower than a repayment mortgage. However, they can have higher fees and interest rates than a standard residential mortgage. You will ordinarily need a minimum of 25% deposit on application.
The main difference with a Buy to Let mortgage is the way in which the lender calculates your loan amount. Both affordability and loan amount are based on the potential rental yield (income from the property) rather than your personal income. It’s therefore important to research the location and property type for average rent prices prior to choosing your property.
It’s important to note that Buy to Let mortgages are not regulated by the Financial Conduct Authority (FCA), unless you are purchasing a property specifically to rent to close family members.
How much can you borrow on a Buy to Let mortgage?
Most lenders will expect your rental yield to be at least 25% more than your monthly mortgage payments. The price of your desired property is not as relevant as whether the potential rental income meets this criteria.
The lender will typically also carry out a stress test on your personal financial circumstances, to ensure that you are able to afford repayments whilst the rental property is vacant.
Planning for property vacancy etc
Whilst a Buy to Let property can offer a fairly stable income, there are a range of circumstances, where it will not provide you with a monthly income.
Some home insurance providers are able to offer a rental protection policy to cover for these situations. For example, periods of repair, difficult tenants or even property vacancy is covered by some insurers.
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Buy to Let tax implications and advantages
- 3% higher stamp duty than a residential property
- Tax is payable on your rental income
- Capital gains tax and income tax are due on profit from the sale of your Buy to Let property
- Tax relief available on; property repair costs, council tax and utility bills (if you pay for them), letting agency and property management fees when you complete your tax return
Where can you get a Buy to Let mortgage from?
A mortgage calculator will show you a range of high street and specialist mortgage providers offering buy to let mortgages.
Finding the right lender for you can be confusing and time consuming, so using a Mortgage Broker can be helpful. This is particularly true if it’s your first Buy to Let mortgage.
How can a Mortgage Broker help?
A Mortgage Broker will look at the acceptance criteria of a wide range of mortgage lenders against your individual circumstances. They can advise you of those lenders most likely to accept your application. This is important, as failed mortgage applications can affect your credit report. This has a lasting impact on your credit score, making it more difficult to be accepted for future applications.
Lastly, but most importantly, Mortgage Brokers may have access to deals that you would not find by yourself. Securing the mortgage deal with the best interest rates available can be essential to overall profitability of your buy to let property.
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.