Buy to let mortgages
Who can get a buy to let mortgage?
Buy to let mortgages are only suitable for people who want to invest in houses and flats. Investing in property can be risky, so you should carefully consider the risks involved.
Typically, buy to let lenders will need you to already own your own home, whether outright or with an outstanding mortgage, in conjunction with a good credit record and not be stretched by existing commitments. This would normally include your existing mortgage(s) and credit commitments you may have.
Often (but not always) applicants will need to prove that you have earned income - typically at least £25,000 a year. Lenders will have their own upper age limits - typically between 70 or 75. This is the oldest you can be when the mortgage ends, not when it starts. For example, if you are 45 when you take out a 25 year mortgage it will finish when you're 70.
How do they work?
Buy to let mortgages are in many ways just like ordinary mortgages, but with some key differences:
- The minimum deposit for a buy to let mortgage is usually 25% of the property's value although some lenders offer deals with a 20% deposit
- Interest rates on buy to let mortgages tend to be higher than a residential mortgage
- Lender arrangement fees can be higher.
Most landlords tend to take buy to let mortgages on an interest only basis, which means you don't pay anything off the amount borrowed. Consequently, at the end of the mortgage term you repay the capital in full. You can however take them on a repayment basis too.
Which lenders offer buy to let mortgages?
Most of the big banks and building societies offer buy to let mortgages. There are also lenders who specialise in this area. It's a good idea to talk to one of our mortgage advisers before you take out a buy to let mortgage, as we will help you choose the most suitable deal.
How much can I borrow on a buy to let basis?
The maximum you can borrow is linked to the amount of rental income you are likely to receive. Lenders typically need the rental income to be a quarter to a third higher than your mortgage payment (25-30%). This means that your monthly rent will need to be typically 25% more than your monthly mortgage repayments on an interest only basis.
To find out what your estimated rent might be, talk to local letting agents or check the local press to find out rent charged for similar properties.
Don't forget to budget for all of the costs associated with taking out a mortgage. And don't forget that many expenses involved can be offset against the rental income for tax purposes.
Buy to let and tax
If you sell your buy to let property for profit, you will pay Capital Gains Tax if your gain exceeds the annual Capital Gains Tax threshold. Also, rental income that exceeds your mortgage interest payments and certain allowable expenses are liable to Income Tax. For further information on the tax implications of buying to let visit moneyadviceservice.org.uk.
What if my tenant leaves or doesn't pay the rent?
Don't assume that your property will always have tenants.
There will almost certainly be times when the property is unoccupied or rent isn't paid, and you'll need to have a financial 'cushion' to draw on to meet your mortgage payments. When you do have rent coming in it is wise to save some of this for eventualities such as repair bills - for example the boiler might break down or there may be a blocked drain.
- Buy to let mortgages are not usually regulated by the Financial Conduct Authority
- Premier Mortgage Services (Nottingham) Ltd trading as Premier Mortgage Services undertakes credit broking and is not a lender