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Buy to Let Mortgages Frequently Asked Questions
Listen below as Hemat Natha talks all about Buy to Let Mortgages.
In less than 20 minutes, you’ll know a lot more about Buy to Let Mortgages.
What is a Buy to Let mortgage and how do they work?
It’s where you’re buying to let a property out – you’re wanting to buy a property as an investment, then become a landlord and let it out to make a profit. Simple as that!
How is a personal Buy to Let different to a limited company Buy to Let?
The government started changing the tax rules in 2016 which made it more tax efficient for some people to buy their Buy to Let property through a limited company.
It’s just that you have a company, where you’re the director and the owner and you hold the property in that company. It’s all about tax efficiency. The other way to do it is owning the property in your own personal name.
We always say to potential landlords that you should get some specialist tax advice on how to hold your investment property. We’re not tax advisors and we can’t tell you how to set that up.
We do know all the various schemes available but we can’t rubber stamp that advice, so do get some tax advice to decide which way you’re going to own that property.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Are there any specialist types of Buy to Let?
So, a standard Buy to Let is where you buy a property and rent it out to some tenants. Then you’ve got the limited company Buy to Let which is classified as specialist.
You’ve also got something called HMOs – houses in multiple occupancy. Those require a specialist licence from your local authority, which allows you to rent individual rooms out to unrelated tenants. For example, you have four rooms in the property and you can rent each of those rooms out to four separate people. It’s common in student areas and allows you to get a bit more rent in. It’s specialist because there are important requirements for how you set the property up.
There’s also something called multi-unit freehold or multi-unit blocks, where you’ve got flats within a block, all on one title. Those can be pretty tricky but we can support your borrowing on those.
You’ve also got serviced accommodation and expat mortgages, where people who are based overseas look to invest here in the UK to get a good return on their money.
Can anyone get a Buy to Let mortgage?
There are a lot of myths about Buy to Let. But generally yes, most people wanting to invest in a buy to let property can get a mortgage – including First Time Buyers.
You might not be ready to live in your own home. You could be renting or living with mum and dad, but you want to put your money into an investment property. You can absolutely get a Buy to Let mortgage on that basis, this will depend on what is available through our panel of lenders.
You can also Buy to Let if you already own your own home and are looking at an investment property. If you’ve got a group of four or more properties, you’re a portfolio landlord. That’s a bit of a specialist area as well, and you can secure a new Buy to Let investment that way with our help.
How much can I borrow on a Buy to Let mortgage?
You’ll be glad to know that my answer to this is different from the usual one! The amount you can borrow isn’t based on your own individual affordability… but it can partly be.
How much you can borrow depends on a few things. Number one, you’ve got to earn a certain minimum income. Number two is your tax status. Whether you’re a higher rate or lower rate taxpayer, the lender will apply what’s called a stress test to the actual rent.
They will look at the rent and your mortgage payment and assess whether that rent is going to cover the mortgage, even if rates go up by a lot. Now, it’s a minefield because every lender has a different calculation or stress test that they apply.
Portfolio landlords will also have a higher stress test than basic rate taxpayers. Higher rate taxpayers will have a higher stress test, and if you’re a limited company you may have a lower stress test so you could potentially borrow a bit more. Two year fixed deals have higher stress, while five year fixes have a slightly lower stress. It’s complicated, so come and talk to us.
To find you the right deal, we need to understand your motivations, your objectives and your circumstances. We’ll ask you about the area you’re looking to buy in and what rent you’ll charge – that will help us determine the right approach.
What deposit will I need?
You can get a Buy to Let mortgage with a 15% deposit, but that will have a huge rate. It’s better to aim for 20% or 25%. The standard is 25% of the property value as a deposit.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages
Your home may be repossessed if you do not keep up with your mortgage repayments.
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It doesn’t cost anything for a chat, it’s free and we never charge a fee until we’ve got a mortgage offer. So pick up the phone and let us take it from there.
What costs are involved in Buy to Let?
It’s mainly the typical costs when buying property – so you’ll have solicitor costs. And if you are purchasing through a limited company, the solicitor costs can potentially double. You need a solicitor acting for the company on the lender’s behalf and on your behalf, so be aware of that. Some lenders do what’s called a joint representation which does both things at once.
You’ll also have lender arrangements fees, survey costs and potential advisor fees as well.
Is it illegal to rent out a house without a Buy to Let mortgage? And is it illegal to live in your own Buy to Let property?
Yes, you shouldn’t rent out your home without a Buy to Let mortgage. There are caveats though. So your residential mortgage provider will allow you to rent a room in your home as long as you live in more than 40% of the property. You can then declare the tax to the government and you have rent-a-room relief as well.
You don’t need any specialist consent from your existing residential mortgage provider for that. But you can’t let someone fully occupy your own home without a Buy to Let mortgage.
And you shouldn’t live in your Buy to Let property because you’ve bought it with a Buy to Let mortgage. If you decide to live in the property we will need to convert that to a standard residential mortgage. For more clarity, ask us the question and we’ll let you know for sure.
You could potentially become an accidental landlord, especially right now in October 2022 with the rising cost of living. Utility bills are going up, costs are increasing. You might decide to move back in with mum and dad to reduce the burden and stress. If you’ve got a residential mortgage, you need to contact your existing lender and get a special Consent to Let from them to allow you to rent the property out.
Most lenders should grant you that consent. Some lenders will limit the amount of time they will give you Consent to Let. Just pick up the phone to us and we’ll let you know. We’ve dealt with pretty much all of the lenders so we’ll let you know if they are open to you letting the property out.
Should I choose interest only or repayment on a Buy to Let mortgage?
I always go back to your motivations for purchasing the Buy to Let property. We’ve often found that people purchasing down in the south-east don’t really rely on the income. What they’re after is capital growth.
People purchasing up north are after yield – which is the return you get on your money. Some landlords will want to live off the income.
An interest only mortgage is going to have lower monthly payments than a repayment deal. If you get £1000 in rent and your mortgage payment is £500, you’ve got £500 minus tax. That gives you £350 left over – what will you do with it? Will it pay for your holiday or your car lease agreement?
It all comes down to your motivations for the investment. Do you want it as a long-term investment? Do you want to forget about it and do you want the mortgage paid off by the time you retire? In that case, get a repayment mortgage.
But everything we’re talking about is dependent on your individual circumstances. So we’ll work with anyone looking for an investment property and ask those questions to determine how to set the mortgage up.
How many Buy to Let properties can I own? Is there a limit?
There isn’t a limit, and Buy to Let can become a bit of an addiction! Especially if you’ve got the right team behind you: a good mortgage advisor, a good solicitor, maybe a good builder, an estate agent or property manager.
We’ve got one customer where we started out with his residential mortgage, then a Buy to Let, then his next rental property, and another, and another. He’s building up a serious portfolio – and it’s really good to go on that journey with our first-time buyers and help them build up that investment.
In answer to the question, you can own as many properties as you want – just make sure you’ve got good tax planning behind it.
Is there anything else we need to know about Buy to Let mortgages?
Here at Mortgage Advice Point our advisers will never be shy to tell you to hang on, if it’s not a good investment. We’ll aim to help you with your future goals, if that is making money with an investment property. We do sense check that Investment. We don’t want to just do a mortgage just for the sake of it.
If you work with us, we’re your partners in that journey. We’re here to fix an mortgage issues or problems for you. Whether you’re purchasing at auction and you’ve suddenly won a bid unexpectedly… you’re like “What do I do? I need a mortgage right now!”
You know we’ll be there. Day or night, we’ll get it done within the timescales you need. Call us, work with us and let us help you on that journey.
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