Buy To Let Mortgages
Buy to Let Mortgage Overview
If you want to buy a property with the intention of renting it out, you will require a specialist mortgage, known as a buy to let mortgage.
Buying a property to rent out can offer the opportunity to benefit from capital growth on the value of the property, as well as income from rent payments.
How buy to let mortgages work
To all intents and purposes, a buy to let mortgage operates in a very similar way as a standard residential mortgage. You can choose from a range of buy to let mortgage offers, including fixed rate, variable rate, and tracker mortgage deals. However, buy to let mortgages can differ from residential mortgages in several key ways:
Buy to let minimum deposits – In general, the available loan to value (LTV) on buy to let property purchases is lower than those available for equivalent value residential purchases. While residential mortgages of up to 95% loan to value (LTV) are available through the Government’s Help to Buy scheme, the minimum deposit required for a buy to let mortgage is usually around 20% to 25 % of the property’s value, as a minimum.
Buy to Let fees - Arrangement fees on buy to let mortgages can be a lot higher than on a residential mortgage.
Buy to let Interest rates – The interest rates charged by mortgage lenders on buy to let mortgages tend to be higher.
Proof of rental income – One of the key areas of difference between a buy to let mortgage and a mortgage on your home is how affordability is assessed. One of the main things a buy to let mortgage lender will consider is how much rent you are likely to be able to charge on the property you intend to purchase.
As well as proving your income, as is required when applying for a residential mortgage, a buy to let mortgage lender will expect you to demonstrate that the market rate for rental income on the property you want to buy is at least 145% of the mortgage repayments.
Buy to let mortgages – Things to consider
Securing a buy to let mortgage deal is not the only expense when it comes to renting out your property. You will also need to ensure that you budget for:
- Letting agent fees – you don’t have to use a letting agent to rent out or manage your rental property, but it can be more convenient to do so. If you do use a letting agent, then you will need to factor this cost into your overall expenses.
- Maintenance – as a landlord, you will be responsible for the upkeep of the property
- Safety checks – these are an annual requirement
- Landlord insurance – this type of insurance covers the building and its contents
- Rental insurance - this type of insurance covers you if you cannot rent out your property, or if you tenant goes into arrears
- Stamp duty – this tax applies if you buy a property worth more than £125,000, just as it does on residential mortgages
- Income tax on your rental income – you will need to declare your rental income (minus certain expenses such as mortgage interest and letting agents’ fees) on your Self Assessment Tax Return each year. If you want to pay an accountant to organise your taxes for you, you will also need to budget for this.
- Capital gains tax (CGT) when you sell the property – unlike your primary residence, a property that you rent out is not exempt from capital gains tax
- Inheritance tax – any rental property you own will be considered part of your estate in the event of your death.
Call our buy to let mortgage team on 0117 403 4222 or request a callback.