Buy to Let Mortgages

Most lenders in the mortgage market offer a Buy to Let mortgage. The products and facilities vary and can be aimed at the small investor who may typically have up to 3 investment properties or full time landlords who have portfolios of properties and are looking for facilities of up to £10 million in lending.

The market has become increasingly complex over the last few years as lenders look for different ways to make their products more competitive and attractive to property investors. Rates charged on Buy to Let Mortgages are generally higher than on mortgages for buying your home but some very competitive deals are available in this sector of the market.

More and more lenders are now offering remortgage packages on Buy to Let products and it may be worth considering moving from your current provider if you are on an uncompetitive rate.

The rate you pay on a Buy to Let mortgage is dependant on the risk involved on the deal. There are now three main factors which are used by lenders in determining which rate is available to you. These are;

• The percentage you need to borrow against the property value (the loan to value)
• The rental coverage (100%, 110%, 125% etc of the monthly payments)
• The indicative interest rate on which monthly payments are worked out (some lenders use a rate of say Bank of England Base Rate + an agreed margin but some are now working this out on the actual rate you are charged on the mortgage).

So while there is a great deal of choice available in the market, the deal which is best for you will very much depend on the size of deposit you have and the amount of rent you can achieve every month which will normally be confirmed by the Valuer.

Criteria varies from lender to lender but most will work along the following lines:

• Most lenders will insist on the property being let on a Assured Shorthold Tenancy in England and Wales, or a Short Assured Tenancy in Scotland. Some will allow a let to a company on a Corporate Let arrangement.
• While most lenders will consider the Buy to Let proposal based on the property value and rental income they will expect employed applicants to have been with their current employer for a period of time or self employed for around at least a year.
• They will expect the landlord to be responsible for all relevant legislation relating to letting a property.
• Most will offer a choice of fixed, discounted or tracker rates.

Some key things to consider when arranging a Buy to Let Mortgage:

• Raising your deposit - you will typically need a deposit of at least 15% when arranging a mortgage on an investment property. This may be from savings or from the equity in your residential property. Most lenders will be happy to consider a further advance (subject to affordability) or you may want to remortgage and raise the capital at the same time. If you have existing investment properties it may be possible to raise the money against these, either from you current lender or again by remortgaging.
• Banking arrangements - it is always advisable to set up a separate bank account for the monthly rental payments and to pay the mortgage and any associated costs. This keeps your finances separate and easily identifiable when it comes to your tax returns.
• Income Tax implications - any net profit you make annually is liable for income tax at your highest rate. The net profit is the total rental income you make on your properties minus any allowable expense such as the interest on your mortgage, property repairs, renewing fixtures and fittings, insurance etc.
• Capital Gains Tax implications - any profit you make when you sell your investment property will be subject to Capital Gains Tax.

The above information on the tax implications involved in having a Buy to Let property is meant to be a very basic guide as to what implications you will need to consider. It is important you understand these in more detail and we would recommend you take proper professional advice from a qualified accountant or contact the Inland Revenue directly. Dedicated Mortgage Solutions take no responsibility for this.

Buy to Let products are widely available but do differ from lender to lender. The Directors of Dedicated Mortgage Solutions have a number of years experience in this market and our expertise can help ensure you get the best deal available. For more information and advice on Buy to Let Mortgages please contact us on 0845 602 5541 or complete our online enquiry form.