Buy to Let Mortgages on Rental Income
Buy to Let Mortgages on Rental Income
Buy to let mortgages work a little bit differently to their residential counterparts. When it comes to buy to let investments, the goal is for the rental income to cover your mortgage and other costs with a bit to spare. As a result, when assessing your suitability for a buy to let mortgage, lenders will look at how much you will get back in rent against the size of your mortgage payments.
How much rental income will I need to receive?
As buy to let mortgage repayments are based around how much rental income you are expected to receive, you’ll also need to take into consideration empty periods and additional maintenance costs.From 2017, landlords are required to yield a rental income of 145% for a standard buy to let and 170% for a house in multiple occupation. This additional 45%-70% provides a cushion, and ensures that you are still able to keep up with payments should the previously mentioned scenarios occur.
How is rental income calculated?
The rental income is typically calculated on mortgage payments that are more expensive than the ones you’re making. Lenders tend to calculate your monthly payment using the rate you’ll move onto after a special short-term deal ends. As an alternative to this, lenders will pick a higher notational rate (typically 6-7%) to allow for rate rises.
Will my income be subject to tax?
All profit received from a buy to let property is subject to tax. From 2017, landlords are no longer able to deduct the financial costs derived from their buy to let properties when calculating their profits at the end of the financial year. This means that landlords' tax bills will increase.
It is important to note that the new tax rules are not applicable to limited companies, and as a result more landlords are looking to set up their own ltd to circumvent the tax rules. However, there are some costs that should be considered before any action is taken.
How can I get a buy to let mortgage?
Before trying to get a foothold on the buy to let property market, you should ensure that you can afford all of the costs associated with it. Additionally, the process of finding a buy to let mortgage that’s right for you can be hard to get your head around. That’s why we recommend contacting an independent financial adviser or a mortgage broker in order to ensure you make the right decisions for your future.
We offer expert unbiased buy to let mortgage advice, and can help although the application process and beyond. Additionally, we have access to leading and exclusive mortgage rates that are not available elsewhere on the market. If you feel that you would benefit with the help of an adviser, contact our buy to let mortgage advisory team on 0117 403 4474, or fill in our online contact form to request a call back and receive a free initial consultation.
