Buy To Let Mortgages

The name is self descriptive. Buy a property to let to tenants.

This type of mortgage has gained massively in popularity in the last 10 years and particularly in the last 5 years. Investors shunning the stock market, or traditional pension investments have become attracted to property as a means of investment.

This has been fueled by rapidly increasing property prices, and a multitude of TV property renovation programmes.

Lenders were initially cautious. Yes, they would lend you the money to purchase a rental property, provided you had a large deposit. Plus, sufficient income to cover the new mortgage and your existing residential mortgage.

As per usual, lenders have relaxed their criteria. Typically they now require only a 15% deposit, and will base their lending decision on rental income, rather than personal income. Typical rental income criteria is that it should cover the mortgage payment x 1.25, although at least one lender has this set at mortgage payment x 1.

Would be landlords often raise capital on their residential property to fund the deposit, or in some cases, the whole purchase price. 

Buy to Let - The advantages

The attraction of owning rental properties is obvious.

• You own, albeit with a mortgage, a tangible asset
• You collect rental income
• You benefit from property price rises - often spectacular
• MORTGAGE INTEREST PAYMENTS (but not capital repayments) attract tax releif

Buy to Let - The disadvantages

• The asset is one unsplittable lump, although more than one person can own the property, it cannot be sold in slices, the whole of the property must be sold at the same time. So what?, I hear you say.  Well if you make a decent profit, you will realise a chargeable gain in one tax year. You will be liable to Capital Gains Tax on that gain.
• Income, less allowable expenses is chargeable to income tax. For a higher rate taxpayer, this means taxed at 40%
• Tenants. You can either deal with the finding of tenants, drawing up contracts, collecting rent, and dealing with problems yourself; or engage a letting agent to do it for you. Agents fees vary from around 10% - 15% + VAT. You will be liable for the cost of the contacts - around £100. You will also have to pay for essential repairs and buildings insurance. These expenses are allowable against profits. As a rule of thumb, allow for 2 months of non-occupancy per year.

If you'd like to discuss your requirements for a Buy to Let Mortgage, you can contact me here