Buy To Let Mortgage

Buy To Let Mortgage Advice &
Limited Company Mortgages in Leamington Spa & Warwickshire

A buy to let mortgage is a financing arrangement designed for purchasing a property that you intend to rent out. If you are renting out a residential property that you do not fully own, it is necessary to have a buy to let mortgage. Renting out a property under a regular mortgage is considered a violation of your contract, as buy to let mortgages stipulate that you cannot reside in the property.

Whether you're planning to acquire a property to lease to tenants, or you currently own a home that you're contemplating renting out, you'll require a buy to let mortgage.

How do buy to let mortgages work?

Buy to let mortgages, sometimes abbreviated as ‘BTL’ mortgages, function similarly to residential mortgages. Essentially, you secure a loan to purchase a property and gradually repay it over an extended period, often around 25 years.

You have the option to select a repayment mortgage, although interest-only arrangements are more commonly favoured amongst landlords. With an interest-only mortgage, your monthly payments solely cover the interest rather than decreasing the overall loan amount through the term of the mortgage. When your mortgage term concludes, you will be required to repay the entire borrowed sum.

Many landlords opt for interest-only mortgages as this approach generates higher monthly profits from their tenants. Since the monthly mortgage payments are lower, landlords receive a more substantial rental profit. However, it's crucial to establish a 'repayment vehicle' to ensure the full loan amount is settled at the end of the mortgage term.

How much deposit will I need for a buy to let mortgage?

When purchasing a rental property, a larger deposit is required compared to a residential mortgage. This down payment typically falls within the range of 20% to 40%. Consequently, the maximum loan-to-value (LTV) ratio sought by mortgage lenders generally falls between 60% and 80%.

How much can I borrow on a buy to let mortgage?

Differing from a residential mortgage, the amount you can borrow through a buy to let mortgage is not based on your personal income. Instead, it's determined by the potential rental income achieved from the property.

Lenders typically require the rent to cover at least 125% of the mortgage interest, and sometimes even up to 145%. Often, this calculation is based on a higher 'stressed' interest rate to ensure that you can still manage the mortgage even if interest rates rise in the future. Therefore, conducting thorough research on the potential rental income of the property is crucial. Factors such as property size, condition and the residential location significantly influence this assessment.

Put simply - the higher monthly rent, the more you will be able to borrow. Using a mortgage calculator can provide you with a practical sense of the financial aspects involved.

What happens at the end of an interest-only mortgage?

Opting for an interest-only mortgage requires a repayment strategy or exit strategy. Relying on the assumption of selling the property at the end of the mortgage term isn’t always enough.

The complexity lies in the fact that property values can fluctuate both upwards and downwards. If the property's value falls below the mortgage amount, you'll be obligated to bridge the gap. Additionally, the process of selling a property can take several months, or even years, and accurately timing the sale can sometimes prove challenging.

For enhanced security, it's advisable to reinvest a portion of your rental income towards the mortgage payments, to reduce the mortgage amount and better position yourself for the future.

Are there any tax considerations with owning a buy to let?

Owning a buy to let property requires the completion of an annual tax return to HMRC through the process of Self-Assessment. The landscape of buy to let taxation is now less favourable compared to several years ago. Knowledgeable and well-advised landlords often set up limited companies to mitigate their tax obligations, a strategy especially appealing to higher rate taxpayers. Whether this will be of benefit to you will depend on your unique circumstances, so it’s vital to seek expert tax advice.

Another tax-related aspect to consider is that the sale of your rental property makes it subject to Capital Gains Tax. Furthermore, you'll encounter additional stamp duty costs - buy to let properties entail an extra 3% stamp duty per banding. It's imperative to engage with other professionals such as solicitors and accountants to advise you on their specialist areas.

Looking for buy to let mortgage advice in Leamington Spa & Warwickshire?

Jack Bewick offers tailored buy to let mortgage advice specialising across Warwick, Leamington Spa, Kenilworth, Stratford upon Avon, Coventry & Warwickshire, Lutterworth & Leicestershire areas.

Offering expert independent mortgage advice on:

First Time Buyer Mortgages

Home Mover Mortgages

Remortgages

Buy To Let Mortgages

Limited Company Mortgages

Affordable Housing Mortgages (Shared Ownership)

Self Employed Mortgages

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME TYPES OF BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FCA.