Buy to Let Mortgages
Buying a property for investment purposes is a great way to build wealth. But there are many things to consider before making this decision. We can guide you every step of the way. Whether you’re looking at purchasing a single property to refinancing a whole portfolio or even advice regarding limited company finance, Clifton Mortgages has many years of experience that you can count on.
Buy to Let Mortgage Bristol
A buy to let mortgage is one that you take out against a property that you intend to let out for profit. They are used on residential properties (not commercial properties which normally require a specific commercial mortgage).
Buy to let property can be an attractive investment with good returns but this needs to be balanced against things such as rental voids, insurance costs, letting agents fees, regulatory and safety costs etc. all of these things can reduce your margin. In addition to that, you will have to pay enhanced stamp duty on any buy to let property. This is equal to 3% of the value of the property on top of any normal stamp duty.
Normally what you can borrow is governed by the amount of rent of the property will produce rather than the income of the perspective Landlord. All lenders will apply a margin calculation to assess the maximum that you can borrow according to the value of the property and the rent that will produce. This margin calculation or interest coverage ratio can vary depending on whether you are taking a short or long-term fixed rate and whether you are a higher rate taxpayer.
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Buy to Let Mortgage Advice
Some lenders will take an income into account when deciding how much you can borrow. This will allow you to top up the amount you can borrow relative to the rent the property produces. Some buy to let lenders use a borrower’s personal income to top up any shortfall in rent which is needed for the borrower to obtain the loan amount they require. This is known as top slicing.
Many lenders will require you to be a residential owner occupier before you can take out a buy to let mortgage. Even more lenders will not allow someone who is a first time buyer to take out a buy to let mortgage.
Another factor to consider is your income. Although they don’t tend to take your income into account when assessing how much you can borrow, many lenders do want applicants to have some minimum earned income e.g. £25,000.
Another factor to consider is your income. Although they don’t tend to take your income into account when assessing how much you can borrow, many lenders do want applicants to have some minimum earned income e.g. £25,000.
What to Consider When Taking a Buy to Let Mortgage
Generally speaking you cannot live in a buy to let property yourself and in most cases, a close family member cannot live in the property either. If that is the case, the lender will disregard the rent of the property and conduct a basic application purely off your earned income and take any personal debts you have into consideration. There are some exceptions to this.
Lenders can restrict who you can let the property to. Sometimes they can place restrictions on letting properties to companies or applicants on benefits. Many buy to let lenders will also not allow you to let a property to people on a short-term basis such as holiday lets or Airbnb customers. There are however some specialist operating in this market so finance can potentially be arranged in such circumstances.
Commercial Buy to Let Mortgages
Due to the changes to taxation, many companies have started offering Limited company buy to let mortgages, where applicant set up a specific company for the purposes of buying and owning the property. This is often referred to as a special purpose vehicle or SPV.
Limited company buy to let mortgages often have to pay higher interest rates than individual mortgages. You should always think very carefully before entering into this type of arrangement. You should always consider taking out specialist tax advice when looking at arrangements such as these. We would be happy to refer you to a number of chartered tax planners in the Bristol area who may be able to help you.
One final point to mention is that there will be a number of changes to the law on buy to let properties with regards their energy efficiency. From 2025 landlords will not be able to let a property to new tenants if it has an energy performance rating of C or worse. And from 2028 they will not be able to continue to let such properties to existing tenants. You should therefore think very carefully about how energy efficient any property is before taking out a buy to let mortgage in respect of it, especially if you are looking at a long-term fixed rate which could restrict your ability to dispose of it if you cannot let it.
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One final point to mention is that there will be a number of changes to the law on buy to let properties with regards their energy efficiency. From 2025 landlords will not be able to let a property to new tenants if it has an energy performance rating of C or worse. And from 2028 they will not be able to continue to let such properties to existing tenants. You should therefore think very carefully about how energy efficient any property is before taking out a buy to let mortgage in respect of it, especially if you are looking at a long-term fixed rate which could restrict your ability to dispose of it if you cannot let it.
We can help you through the buy to let maze whether you are a first-timer or a seasoned portfolio landlord. To discuss all of your buy to let options, please book an appointment.
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