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Buy to Let Mortgages – Your questions answered

Who can get a Buy to Let mortgage?

You might be interested in investing in property to rent and wondering if a Buy to Let (BTL) mortgage is the right option for you. 

There are criteria to fill when it comes to Buy to Let mortgages, for instance, most mortgage lenders will require you to own the residential property you live in and be on an income of at least £25,000 annually, however some lenders do not have a minimum income requirement.

How does a Buy to Let mortgage work?

You will need to provide a deposit of 20-40% of the rental property’s value. Most Buy to Let mortgage deals and mortgage terms are not authorised and regulated by the Financial Conduct Authority meaning that they can have varying criteria amongst lenders. 

Most Buy to Let mortgages are taken out on an interest-only repayment basis meaning that you will not be buying a property through the rental income, the mortgage amount will still be due at the end of the term.

It is possible to have a mortgage on a repayment basis, but it does mean if the property is untenanted then the cost you have to find each month is higher.

The interest rates on Buy to Let mortgages are higher than your standard variable rate and fixed-rate residential mortgage payments. There are a lot of things to consider when it comes to investing in property. For instance, the location, the expected rental income and the fact your money can often be tied up in the property for long amounts of time. 

It would be worth seeking advice from an expert at CD Financial to explore your options when it comes to investing in property and which will be the right option for you. 

How much can you borrow on a Buy to Let mortgage?

The amount that you will be able to borrow will depend on how much you expect your rental income to be. You can always use a Buy to Let mortgage calculator to get an estimate of how much you may be able to borrow. Lenders tend to require your rental income to be at least 20% higher than the amount you are repaying for the mortgage itself. 

Planning for when there is no rent coming in

You need to expect that there will be periods of time in which you have no rental coming in, either the tenants are missing payments or there are no tenants occupying the property at all. It is important to not rely on the rental property too much in terms of the mortgage which is why lenders prefer it if you already own your own home. 

You will still need to make mortgage repayments on your Buy to Let even when rent isn’t coming in and if you miss the repayments, your home may end up being repossessed. You need to consider the property market and equity too before investing and ensure you have some amount of money kept as a back-up to help towards costs. 

Tax implications of a Buy to Let mortgage

There are different tax implications when it comes to investing in property that you will need to consider before applying for a Buy to Let mortgage. 

Stamp Duty Surcharge

When you purchase a Buy to Let property, you will pay a Stamp Duty surcharge which is 3% of the total purchase price, i.e. A £200,000 purchase price = £6,000 stamp duty surcharge.

Normal stamp duty is also payable, so on a purchase price of £200,000 the normal Stamp Duty would be £1,500, resulting in a total stamp duty cost of £7,500.

Income Tax

Rental income is subject to Income Tax, and as a landlord you will need to confirm to HMRC that you need to complete a self-assessment and you will then need to do this at the end of every financial year, to declare your rental income and pay any tax due.

Rental income will be taxed at 20-40% depending upon what other taxable income you have.

You can reduce your income tax liability with allowable deductions, such as letting agent fees, building insurance etc

Only mortgage interest payments can be deducted, and the deductions that can now be made are only based on a % of the interest you pay.

Before buying a rental property it is advisable to speak to an accountant to understand the potential tax position.

Capital Gains Tax (CGT)

If you sell your rental property then you will usually pay Capital Gains Tax on any gains you have made from the sale of the property.

You do have a capital gains tax allowance you can use to reduce any tax due, you may also be able to offset solicitor and estate agent fees, which can reduce the Capital Gains Tax due.

You must declare gains that are made from selling your property on your tax assessment within the tax year.

How can a Mortgage Broker at CD Financial help you?

Buy to Let mortgages can be complicated, especially as the mortgage lenders can differ dramatically as they are not regulated mortgage products. You might be wondering if investing in property is the right option for you – expert mortgage advisers at CD Financial are here and ready to give you tailored advice based upon your current circumstance and help you look at all the options.

The mortgage market is ever-changing and as we have access to the independent mortgage market we can keep up to date with the new deals and happenings within the market. Get in touch with us today to take your first step into investing in property.

Your home may be repossessed if you do not keep up repayments on your mortgage. The Financial Conduct Authority does not regulate most Buy to Let Mortgages.