What is a Buy To Let Mortgage?

How much can you borrow on a BTL Mortgage?

Whilst your affordability will be considered, the mortgage amount will be based on the level of income expected from letting the property. Most lenders require the income to be at least 25% higher than your mortgage payment.

Which lenders offer BTL Mortgages and how can a Mortgage Broker help?

There are a range of lenders who offer buy to let mortgages, including major banks and specialist BTL lenders. Using a specialist BTL mortgage broker, however, will help ensure that you get the most appropriate deal for you.

Planning for tenant free periods

If your property is vacant for a period of time, perhaps whilst you are making improvements or advertising for new tenants, you won’t have a rental income. It’s important to have a plan in place to cover these periods. You may be able to use savings, but having a high level of rental protection insurance is advisable. Some policies are able to cover you during refurbishments or whilst the property is vacant.

Don’t rely on selling a property to repay the mortgage

If you take out an interest only BTL mortgage with the intention of selling the property at the end of the mortgage term in order to cover the final lump sum, you may run into issues. There is always the chance that a fall in house prices since you bought the property. This will mean you have to make up the balance out of your own pocket.

Buy to Let: Tax Implications and Advantages    

There are a number of advantages and disadvantages of taking on a BTL property. For example, in the past 20 years, property values have risen by 263%, giving you a high chance of a profitable investment. The UK rental market is also currently strong and not likely to change. 

On the other hand, of course, the property may not always be occupied, leaving a gap in income to pay the mortgage. You also have increased stamp duty (3%higher) compared to residential homeowners. 

BTL and Taxes

There are both tax benefits and further implications to consider when taking out a BTL mortgage. Some areas are quite complex and it would be wise to consult a financial advisor or BTL mortgage broker for further information.

Benefits

You have to submit a tax return for any self employed income gained from your rental property. You can reclaim some costs associated with being a landlord, however. These include; repair costs, council tax and utilities, letting agent fees and interest on your mortgage repayments.

Implications

You have to pay income tax on any profits gained from letting out your property. This will be based on your income band, so if the earnings from your rental property push you into a higher tax bracket, you will be liable for a higher amount. This rate is between 20% and 45%.

You are also liable for capital gains tax if you decide to sell your BTL property. This charge is based on your tax rate and is currently set at 18% for basic rate tax payers and 28% for those on higher rates. You will also need to declare any profits made from the sale of a rental property on your tax return. This will be considered in the calculation of your tax band for the following year.