Buy to let mortgages – this a mortgage specifically designed for this purpose.
A Buy to let is a referring to the purchase of a property specifically to rent out.
Top things to know about Buy To let Mortgages
How to get a buy-to-let mortgage
You will struggle to get a buy to let mortgage if you don’t already own your own home; whether outright or with an outstanding mortgage. Typically you must also earn up to £25,000 a year but there are lenders have different criteria. Also the the property must be in good condition suitable for mortgage purposes.
Buy To let mortgages are a lot like standard mortgages, but with some key differences; Such as the fees also tend to be much higher and the interest rates on Buy To let mortgages are usually higher. Most Buy To let Mortgages are interest only. This means you don’t pay anything each month, but at the end of the mortgage term you repay the capital in full. The minimum deposit for a is usually 25% of the property’s value.
Most Buy To let Mortgage lending is not regulated by the Financial Conduct Authority (FCA). There are exceptions, for example, if you wish to let the property to a close family member such as a spouse, civil partner, child, grandparent, parent or sibling. These are often called a consumer buy to let mortgages and are assessed according to the same strict affordability rules as a residential mortgage. Consumer Buy to Let aims to provide a difference between “accidental” landlords who may need consumer protection and “professional” landlords who run their property portfolios as a business.
Calculating the mortgage amount
The maximum you can borrow is linked to the amount of rental income you expect to receive. Lenders typically need the rental income to be a 25–30% higher than the stressed tested mortgage calculation set by the lender.
Also it is important to think of the times when the rent is not coming in. You must not assume that your property will always have tenants in it to pay the rent. There will almost certainly be periods of time when the property is empty or rent isn’t paid and you’ll need to have a financial buffer to cover those repayments. So when you do have rent coming in, it is advised to put some of this money away to cover for these periods of time. You might also need the money for major repair bills from time to time. For example, there might be a blocked drain or the boiler might need replacing.
Factors to consider
Also it is important to think about the type of tenant you want to attract. Families, professionals, or sharers? Considering this may help you to decide on the type of property you buy and its location. The property should be let on a single assured shorthold tenancy in England and Wales. In Scotland it should be a short assured tenancy or a private tenancy in Northern Ireland.
Financially you should also consider if your rental income that exceeds your mortgage interest payments; and also if certain allowable expenses are liable to Income Tax.
If in the future you decide to sell your buy to let property, you will pay Capital Gains Tax if your gain exceeds the annual Capital Gains Tax threshold. Finally, and most important of all and not to forget: Your home could be repossessed if you do not keep up-to date with your mortgage repayments!
To find out more about Buy To let Mortgages & if would like to make an appointment to talk with one of our Mortgage advisers
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Read our news post about: 10 things to think about when applying for a mortgage
IEP Financial Financial advisers based in Brighton Hove and Eastbourne is authorised and regulated by The Financial Conduct Authority (FCA)
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