Buy to let Mortgages
Buy to Let (BTL) mortgages are only suitable for people who want to invest in houses and flats. Investing in property is risky, so you shouldn’t take out a BTL mortgage if you can’t afford to take that risk.
You’ll struggle to get a BTL if you don’t already own your own home, whether outright or with an outstanding mortgage. You must have a good credit record and not be stretched too much on your other borrowings such as your existing mortgage and credit cards. And you are likely to find it harder to get a BTL mortgage unless you earn at least £25,000 a year.
Not all BTL Mortgages are regulated by the Financial Conduct Authority (FCA)
Good Mortgage Solutions have access to a variety of mortgage lenders who specialise in BTL mortgages. A number of these lenders will only deal with mortgage professionals and companies accredited to the FCA. Our advice on all mortgages are free and you are under no obligation to accept any of the advice given. Initial meetings normally last less than an hour at a time and place to suit you.
Key Differences in BTL Mortgages
BTL mortgages are in many ways just like ordinary mortgages, but with some key differences:
* interest rates on BTL mortgages tend to be higher
* the minimum deposit for a BTL mortgage is usually a quarter (25%) of the property’s value (some lenders need a 20% deposit, others require a 40% deposit),
* the fees tend to be much higher
Most BTL mortgages can be completed as interest-only, which means you don’t pay anything from the lump sum borrowed. You would clear the lump sum when you sell the property or at the end of the mortgage term through your own savings. This is different to residential mortgage where most lenders insist on a repayment mortgage, where the balance reduces month on month.
How much you can you borrow for BTL mortgages
* 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 125% of your mortgage payment.
* Most lenders require an additional minimum income level often £25,000 per year, as well as the rental income.
To find out what your estimated rent might be, talk to local letting agents or check the local press to find out rent charged for similar properties.
Disadvantages of a BTL Mortgage
Don’t assume that your property will always have tenants. There will almost certainly be ‘voids’ when the property is unoccupied or rent isn’t paid, and you’ll need to have a financial ‘cushion’ to draw on to meet your mortgage payments. When you have rent coming in, use some of it to top up your savings account. You might also need savings for major repair bills – for example the boiler might break down or there may be a blocked drain.
* Don’t fall into the trap of assuming you’ll be able to sell the property to repay the mortgage – if house prices fall, you might not be able to sell for as much as you had hoped. If this happens, you’ll be left to make up the difference on the mortgage.
BTL and tax
* Stamp Duty- Rules changed in March 2016. Stamp duty is payable on anyone with a second property at rates 3% above the normal stamp duty levels. 0- 125,000 3% £125,000- 250,000 5% £250,000 - £950,000 8%
* If you sell your BTL property for profit, you will pay Capital Gains Tax if your gain exceeds the annual Capital Gains Tax threshold. Also, rental income that exceeds your mortgage interest payments and certain allowable expenses are liable to Income Tax.
Don’t forget the additional costs
* It’s not just a solicitor you need to account for, you may have fees for letting agents, maintenance costs, special landlord and rent insurances and even capital gains taxes when you sell. Plus, the property could be empty between tenants.
* Rental income is added to any other income you earn during the year – for example, from employment or savings – to calculate your tax liability. You must declare this income on a Self-Assessment tax return each year.
However, you can claim certain expenses to offset against your rental income and reduce your tax bill. This includes, for example, mortgage interest payments, if you have a BTL mortgage, letting agent fees and maintenance costs.
Capital Gains Tax
* If you are selling a property that isn't your main home – including a rental property – it’s likely that you will have to pay Capital Gains Tax on any profit.
You can offset expenses of a capital nature such as replacement windows against capital gains when the property is sold. As this may be many years later it is important that you keep records and evidence of any such expenditure. Then when you come to sell check with an accountant what you can claim back.
For more information on Capital Gains on property go to
You have many legal responsibilities to comply with as a landlord, including:
* drawing up a compliant tenancy agreement
* safety of gas and electrical appliances that you supply
* fire safety of furniture and furnishings that you supply
* providing an Energy Performance Certificate for the property
* Some aspects of landlord obligations and rules may vary in Scotland or Northern Ireland.