Buy To Let Mortgages

Buy To Let Mortgages – How To Obtain A Mortgage For An Investment Property

 

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How To Find The Best Mortgage Adviser For Your Buy To Let Property

Buying property as an investment has been incredibly popular over the last few years. Although it is still a potentially fantastic investment, recent changes to how investment homes are taxed mean that it is more important than ever to find the right mortgage adviser for your buy to let property.

Buy To Let Mortgages Vs Residential Mortgages

There are some fundamental differences between obtaining a mortgage for a residential property and obtaining a buy to let mortgage.

You Need To Already Own a Property

If you want a buy to let mortgage then you will need to already own another property; even if you don’t currently live in it. Lenders stopped providing buy to let properties for first time buyers in order to stop ‘back door residential property purchases 

You Will Need A Larger Deposit

Unlike residential mortgages, where the deposit can be as low as 5% of the purchase price, you will need a much larger deposit for a buy to let mortgage – typically at least 25% of the purchase price.

Affordability Assessment For Buy To let Mortgages

Unlike residential mortgages, most buy to let mortgage providers will not look simply at earned income to decide whether your buy to let mortgage is affordable, with most providers only requiring a minimum income to be in place with the average income being around £25,000 p.a.

Just as important for affordability is the expected rental income that the property is expected to achieve. It is this income calculation which is the main reason for buy to let mortgages failing to be approved as lenders have tightened the rental income criteria over the last year which results in mortgages failing. particularly in the south-east of the UK

Example of rental income requirements 

Client wants to buy a property for £300,000 with £200,000 mortgage required 

Mortgage lender requires the expected rental income to cover the mortgage based on the following formula:

£200,000 x 5.5% x 135%

So in order for the mortgage to be granted, the gross annual rental income will need to be £14,850 p.a. or £1237.50 per month. The rental income will be assessed during the valuation and if the rental income is assessed as being lower than this figure then the £200,000 mortgage will not be approved.

There are a small number of lenders that will provide mortgages when the rental income does not meet this threshold – contact FindAdviser for more information.

Let To Buy Mortgages – How To turn Your Home Into A Buy To Let Property

A variant of buy to let is let to buy; this is the process where you buy a new residential home and instead of selling your current property you keep the property and let that property out. Providing you have sufficient income to cover the new property and equity in your existing property it is even possible to buy a new residential property and rent out your existing property without needing to have any savings in place – contact FindAdviser for more information.

Tax Changes To Buy To Let Property In 2016 And How This Affects Your Buy To Let Mortgage

In 2015 George Osborne announced a number of changes to the tax treatment for buy to let investors which will have a significant  impact on investment property owners and how they should structure their mortgages.

What Are The Tax Changes For Buy To Let Properties?

Stamp Duty

An additional 3% stamp duty charge now applies to all buy to let properties or second homes over £40,000.

Tax Breaks To Rental Income

Historically, landlords have been able to automatically deduct a number of expenses against the tax that they would otherwise have to pay on the rental income received from their properties. The new rules announced will, over a 4 year period, starting from April 2017, radically alter this policy so that many of the automatic deductions no longer apply, plus all relief will be capped at 20% meaning that high rate taxpayers will pay substantially more in tax on rental profits.

How The Tax Changes To Buy To Let Property Affects Your Choice of Buy To Let Mortgage 

The tax changes for buy to let property owners is likely to be significant – it is estimated that buy to let mortgage owners whose mortgage interest is 75pc or more of their rental income, net of other expenses, will see all of their returns wiped out by 2020

What Are The Mortgage Options For Property Investors?

There are options available for anybody looking to obtain a buy to let mortgage which could result in less tax and higher profits, particularly for higher rate tax payers or anybody who is close to being a higher rate taxpayer. These include the use of a special purpose tax vehicle or Limited Company through which the property can be purchased which will result in significantly less tax being charged. Contact FindAdviser for more information.

 Call Now On 08000-146-701 For A Free Initial Phone Consultation