Buy To Let
An investment property can provide extra income
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Buy to Let and Let to Buy Mortgages
An investment property can provide you with extra income and can be a way of you creating an asset to be passed onto your children. You don’t have to let your hard-earned money sit in a savings account, why not consider putting it to better used with an investment property.
There are lots of benefits to being a But to Let (BTL) landlord, but as with anything there are pitfalls too. The best way to be sure that you are making the right decision is to speak to an experienced mortgage advisor who can assess everything and find the most suitable mortgage for you.
Whether it’s your first But to Let/Let to Buy mortgage, your next BTL mortgage, or you need advice on finding a new rate for your existing BTL mortgage/s, we are here to help you get the best possible deal for you.
We have helped a lot of First Time Landlords, First time buyer landlords, Experienced landlords, portfolio landlords and limited company landlords.
Below is some useful information which we hope will give you some tips and a better understanding of things.
Buy to Let OR Let to Buy mortgages are not as straight forward as a residential mortgage, so the below will offer basic information otherwise we could go on forever!
But should you want to explore any of the below in more depth we are here for a free no obligation chat.
1 What is a Buy-to-Let Mortgage:
A Buy to Let (BTL) mortgage is a loan that allows you to rent out a property you are purchasing or currently own to paying tenants.
This type of mortgage is purely for the purpose of letting the property out to tenants. You are not allowed to reside in the property. You also cannot let the property to any family members. This would be a breach of your mortgage agreement and can put your property at risk. Both scenarios would require you to have a residential mortgage.
Most Buy to Let (BTL) mortgages are set up on an interest only basis, which means your monthly payments will only be covering the interest on the mortgage balance each month. This means that the mortgage balance will not reduce by the time the mortgage term comes to an end unless you set up a suitable repayment vehicle, make lump sum overpayments, make small monthly overpayments, or convert the repayment term to full repayment. It’s advised you are clear on what your overpayment allowance/s are if you are taking a rate that has Early Repayment Charges (ERC’s). Your mortgage advisor will make sure everything about the mortgage you are considering is made clear to you.
As the profits can be high as a landlord it is vital you seek Tax Advice before committing to a Buy to Let investment. The income you earn on an investment property is subject to some form of tax depending on whether you are buying as a Limited Company or in your own name.
2 What is a Let to Buy (LTB) Mortgage:
A Let to Buy (LTB) mortgage enables a homeowner to rent out their current residential home and buy another new residential home.
You would arrange a LTB mortgage on your existing home so you have the right type of mortgage which allows you to rent the property out to tenants. And then you would arrange a residential mortgage on the new home you have found.
This is a great way for you to keep your property, earn rental income whilst benefiting from the property value increasing over time (in a good market). You can eventually choose to sell this property to free up some cash if needed, or at some stage in the future do a remortgage to release equity (subject to the property value/rental and other criteria at the point of application)
Should you continue to let the property beyond the initial Let to Buy (LTB) rate period you would switch this to a standard Buy to Let (BTL) mortgage.
3 How do Buy to Let – Let to Buy Lenders assess what you can borrow:
Lenders will use a rental income calculation to assess how much you can borrow. The deposit size required used to typically be 25% of the property value but in more recent years we have seen this change, and some cases require a larger deposit. Our experience has showed that although the rental is good, the stress testing each lender uses doesn’t always meet with the loan amount you require, resulting in a larger deposit being needed.
How a lender stress tests will be down to what Income Tax band you fall into.
In some cases, some lenders can take personal income into account to overcome a rental shortfall. This is known as Top-Slicing and can help you achieve the loan amount you need.
You will be required to provide evidence of income (some lenders require you to have a minimum income level and others don’t have a minimum income but are likely to want to see something), ID, and other documents. This is standard but your mortgage advisor will let you know ahead of time of what is needed. Each lender has their own criteria.
For further information and a more accurate idea of the maximum loan amount a lender would be happy to lend you contact us where we can offer a full assessment of your situation.
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4 Costs associated with But to Lets – Let to Buy:
We have listed some of the standard costs you will need to consider if you are thinking of buying an investment property. Please note this is not a full list as each case is different but this will give you an idea of what to expect. We advise you speak to a mortgage advisor and a Tax Expert to fully understand the possibly costs relating to you and your situation.
- Solicitors fee
- Stamp Duty
- Valuation fees
- Mortgage advisor/broker fees.
- Lender’s arrangement fee/s
- Accountant fee (possible)
We hope this has given some basic level information and answered a few questions. If you want to explore things further, we are here to help and provide more information relevant to you and your own personal situation.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER DEBTS SECURED AGAINST IT.