Buy To Let Mortgages

Buying a property as an investment is a big decision; there are many tax implications which need to be considered, and most people will need a buy to let mortgage to help them with their purchase.

For expert advice contact us by phone or email. Appointments can be arranged if you would prefer a face to face meeting.

Income and Deposit

Unlike a residential mortgage, where the amount you can borrow is based on your salary and your outgoings, a Buy to Let mortgage is assessed on the potential rental income. Lenders will typically need the rental income to be at least 125% of the monthly mortgage payments (on an interest-only basis) and they will then stress test this using an interest rate of around 5.5%.

Most lenders will also require you to be earning another income, preferably over £25,000 per year.

As a rule, you will need a deposit of 25% or more of the property’s value, although some lenders will require as little as 15%, provided the rental income is sufficient.

Tax

Stamp Duty– You pay an increased rate of stamp duty, above the amount you would pay to purchase a residential property. This amount varies depending on the price of the property and where it is in the UK.

Capital Gains Tax– This applies if you go on to sell the property for more than you paid for it, essentially ‘gaining capital’. After deducting costs such as stamp duty and estate agent/solicitors’ fees, the tax is charged on any profit.

Income Tax– The income you receive as rent is taxable. You need to declare any rent you receive as part of your Self-Assessment tax return. The tax on your income is then charged in accordance with your income tax banding however, you can minimize the tax you have to pay by deducting certain ‘allowable expenses’ from your taxable rental income.

Inheritance Tax– This is payable on buy to let properties but the amount changes depending on your circumstances. A buy to let property that you own will form part of your estate for Inheritance Tax purposes.

We would recommend that you obtain specific professional advice from a tax and legal adviser before you take or refrain from any action.

Let to Buy

You can choose to move home, whilst also keeping your current property to rent out. If you do not need to raise any additional money against your residential property, this may be possible by staying with your current lender. You will need to approach your existing lender and inform them that you would like Permission to Rent. Some are very helpful and allow you to do this for a short time, usually until your existing mortgage deal comes to an end. If you wish to keep the property rented after this point, you can then look at changing to a Buy To Let mortgage.

If your lender does not allow you Permission to Rent or you wish to raise money against your current property, you would need to apply for a Buy To Let mortgage.

Before letting out a property you own, there are a number of steps you need to take. Failing to notify your mortgage lender, insurance provider or HMRC that you are letting a property could lead to very serious consequences, including repossession of the property.

If you’d like to arrange a no-obligation meeting to discuss how we can help you please get in touch today, either by calling us on 01452 547783 or by using our contact form.