Buy-to-Let Mortgages
A buy-to-let mortgage is secured on a property that has or is being purchased for the sole reason of being let out to tenants. Buy-to-let mortgages are for people who want to become landlords, yet who don’t have the capital to buy a property outright. Instead, they approach mortgage advisers, and get the money in the form of a loan, which they’ll pay back with rental income.
The features of a buy-to-let mortgage differ significantly from a standard residential. These differences will be explained fully by our advisers during your call. The most notable difference is the formula used for calculating your maximum loan sum.
How much can you borrow?
When applying for residential mortgages, changes to your income and financial commitments will heavily impact the loan sum offered by lenders. This is because your personal finances are the only measure of affordability in residential mortgage applications.
Whereas, for buy-to-lets, your income and financial commitments are far less significant. As you will be purchasing a property in the hope of generating rental income, the lender does not have to rely on your occupational income to meet the monthly mortgage payments. The higher the rent, the bigger the loan you’ll be able to receive.
The rental income that can be charged by a landlord is largely determined by the location of a property. Prospective purchasers should search for homes in areas where there is a high demand for rental homes. Typically, mortgage lenders will ask that the rental income amounts to 140% (sometimes higher) of the cost of the mortgage repayment.
Who can be a buy-to-let landlord?
For most lenders, you must earn a minimum of £25,000 gross per annum if employed and £25,000 net profit per annum if self-employed.
there are strict buy-to-let lending criteria that increase the barriers to finalising a purchase. For example, unlike residential applications, borrowers currently require a deposit of at least 20% of the property’s purchase price before lenders will consider an application. Whereas, with residential applications, a 5% deposit is the minimum.
The costs of becoming a landlord are ever-growing in the United Kingdom. Alongside arrangement, valuation and legal fees when making a buy-to-let purchase, you also need to factor in Stamp Duty Land Tax (SDLT). SDLT is correlated with the purchase price of your property. For buy-to-let and second home purchases, a 3% surcharge applies.
Buy-to-Let for a Limited Company.
Buy-to-let mortgages for limited companies are an increasingly popular solution for property investors primarily due to the tax implications. Holding buy-to-let property in a limited company may offer some tax benefits to certain people - e.g. some higher rate taxpayers find it to be more tax-efficient than owning property as a private landlord.
There are a number of ways of owning rental property through your existing limited company or via a SPV (Special Purpose Vehicle) limited company. For tailored advice on criteria needed for a limited company buy-to-let mortgage, make an enquiry.