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Welcome to our Buy-to-Let Guide, your ultimate resource for navigating the dynamic world of property investment. If you are a newcomer exploring the potential of rental income, this guide is tailored to provide you with insightful information and strategic advice.
A-buy-to-let (BTL) mortgage is a loan that is taken out to fund a property that will be rented out to private tenants.
Buy to let mortgages work like a traditional residential mortgage in many ways apart from the way lenders calculate if you can afford it.
Rather than looking at your income to determine borrowing, lenders focus on the rental income the property will generate.
Other differences include the fees and interest rates being traditionally higher than residential home owner mortgages.
It’s also worth noting that many buy-to-let loans (mortgages) are not regulated by the Financial Conduct Authority (FCA) unless you are renting to a family member.
A buy-to-let mortgage is a type of mortgage specifically designed for individuals or companies who want to purchase property with the intention of renting it out to tenants. However, the eligibility criteria for obtaining a buy-to-let mortgage can vary between lenders and may change over time.
In order to secure a mortgage for an investment property, you will typically be required to provide a deposit of around 25% of the property’s total value. Just like with residential mortgages, the larger your initial deposit, the more favorable interest rate you can obtain. The most advantageous buy-to-let offers are usually accessible to investors who can provide deposits of 40% or more.
When evaluating your financial eligibility, lenders will consider your existing portfolio and your past track record in obtaining and successfully repaying buy-to-let and residential financing.
The amount you can borrow is based on the expected rental income of your property.
Lenders will typically need the rental income to be at least 125% of the monthly mortgage payments.
We offer buy to let mortgages normally with a minimum borrowing amount at £25,000 and a maximum up to £2,000,000 .
As we’ve mentioned, lenders look at different things when processing buy to let mortgage applications compared to ones for owner-occupied properties. They will consider the eligibility of both you and the property.
Lenders will look at your:
If you have more than three buy to let properties, you qualify as a “portfolio landlord”. That means that all your properties are considered when you apply for a new buy to let mortgage, so any underperforming ones could limit your mortgage options.
Lenders will look at its:
Buy to let loans are a type of mortgage and so long-term borrowing is the norm. The length depends on the lender, but they are typically around 25 years but you can have longer terms up to as much as 40 years.
The duration of obtaining a mortgage offer and completing a property purchase can vary based on several factors, including:
This is the period it generally takes for a lender to review your mortgage application, perform the necessary checks, and make a decision regarding whether to offer you a mortgage.
The exact duration can depend on various factors such as the complexity of your financial situation, the lender’s workload, and the accuracy and completeness of your application. It is typically 2-4 weeks to receive a mortgage offer.
Completion refers to the finalisation of the property purchase, where all legal and financial aspects are settled, and ownership is transferred from the seller to the buyer. Completion depends on the duration of the property purchase. It depends on various factors, for instance, if the property is part of a chain, the property type, and local factors, to include a few.
As with any loan or mortgage, you will risk having a negative impact on your credit rating and credit history, and ultimately, you risk losing your rental property.
There are two options to repay the buy to let mortgage – interest only and repayment.
The two main ways to charge interest on a buy to let mortgages are with a fixed or a variable rate.
When you contact Mortgage Decisions will be happy to discuss your needs and circumstances, then point you towards the best options for you.
Yes, it is possible to get a buy-to-let mortgage if you are a first-time buyer, but it is not necessarily an easy task. Lenders will view you as high-risk, as you’ve yet to own a property. You will need a minimum of 25% deposit, meet the minimum income and affordability check, meet the employment check, and have a good credit history.
Few things you should bear in mind:
Yes. If you decide to move into the buy-to-let property yourself after a few years, you can then switch your buy to let mortgage to a residential mortgage but only with the lenders’ permission.
Becoming a landlord doesn’t always happen by deliberate choice. For instance, you might find yourself inheriting a property or changes in your situation might lead you to move back to renting, prompting you to decide to lease your own house.
Irrespective of the path to becoming a landlord, it’s essential to inform your mortgage lender if you plan to rent out a property for which you still have an outstanding owner-occupier mortgage.
Lenders view buy-to-let properties as carrying higher risks. Therefore, failing to communicate with your bank about this arrangement could potentially void your mortgage agreement.
Some lenders might provide you with ‘consent to let’ within your existing agreement, while others might require you to switch to a buy-to-let mortgage.
In the scenario where you intend to rent out your property for short-term periods, it’s essential to acquire permission from your residential mortgage lender. This arrangement is referred to as Buy-to-Consent.
Numerous lenders stipulate the necessity of obtaining a buy-to-let mortgage due to the inherent risks associated with leasing a property. These risks include situations where you might face challenges in covering your mortgage payments if your tenants cease rent payments or if the property remains unoccupied.
You’ll be required to pay Stamp Duty Land Tax and Income Tax when you get a buy-to-let property. You’ll also have to pay Capital Gains Tax if you choose to sell the property.
Stamp Duty Land Tax is applicable to properties and land in England and Northern Ireland that exceed a particular value threshold.
If you purchase a residential property that isn’t your primary residence, such as a second home or a property for buy-to-let purposes, an additional 3% surcharge is added on top of the standard Stamp Duty rates.
Owners of buy-to-let properties are also obligated to settle Income Tax on the rental earnings generated. An allowance of £1000 is permitted and certain expenses can be subtracted.
As of September 2021, the tax rates for individuals were:
If you sell your buy-to-let property and make a profit (capital gain), you may be liable to pay Capital Gains Tax. The rates for CGT can also vary depending on your overall income and other factors. As of my last update, the rates for individuals were:
There are also various reliefs and allowances that could apply, such as the annual tax-free allowance for CGT, called the “Annual Exempt Amount.”
Apart from the initial deposit required to secure a buy-to-let mortgage, there are also some other costs to consider including broker fees, lender fees, valuation fees, legal costs and stamp duty. Sometimes lenders will include the legal costs in the mortgage offer.
In general, most mortgage lenders require you to provide:
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The process is quick and simple at Mortgage Decisions. Initially, we would discuss the options and potential lenders that would be suitable and then we would apply to a lender for an agreement in principle to give you confidence if you would like to offer on a suitable property.
Once a property has been found we will then present our recommendations after searching the marketplace, and with your agreement we would then submit a mortgage application.
Our admin team will then take over and communicate with the lender until the mortgage offer is produced. Once you have your mortgage offer we will assist in chasing your conveyancing through until exchange and completion.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
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My request to renew my existing mortgage with Mortgage Decisions was superbly handled by David who is a most knowledgeable person. I was impressed with his professionalism and his attention to detail. The end to end process was explained throughout by David in particular the various options available to me. This is the second time that Mortgage Decisions have assisted with my mortgage and I wouldn’t hesitate in asking them again in the future.