Your Guide to Buy-to-Let Mortgages
Regardless of whether you are new to the Buy-to-Let scene or you are an experienced landlord, fully understanding the ins and outs of Buy-to-Let mortgages is essential when managing your property portfolio
Tell your mortgage lender
Your lender needs to give you formal ‘Consent to Let’ before you can let out your property. Your decision to let may mean that you are put onto a higher Buy-to-Let interest rate.
Failing to notify your lender that you are letting out your property will put you in breach of your mortgage agreement.
Tell your insurer
Your standard Buildings and Contents insurance will not cover you if the property is to be let out. You will need to seek specific Landlord’s Insurance instead.
Speak to a letting agent
Letting agents are there to help with the management of your property and can help you when setting yourself up as a landlord, but you will need to pay a small fee for this.
A Buy-to-Let mortgage operates in a very similar way as a residential mortgage. It has the same types of rates with the same kinds of fees and charges. However, a Buy-to-Let mortgage does have a few key differences.
For example, mortgage interest rates for these types of mortgages tend to be higher than those for residential mortgages on your home, and the loan-to-value (LTV) is generally lower.
One of the main changes when going for a Buy-to-Let mortgage is how your affordability is assessed. Whilst employment income, benefits and a combination of other sources are used to evaluate your ability to repay the loan, Buy-to-Let works in a different way.
Income will be assessed as a percentage of your mortgage payment, usually at least 125%. To explain, if your mortgage payment is £700, you would need to attain rent of at least £875.
When renting out your property, there are also different taxes that you will have to pay. Stamp Duty has to be paid on a purchase of any property worth more than £125,000 regardless, but you may also have to pay Income Tax on the rent you receive and Capital Gains Tax when you come to sell the property.
You must state your rental income on a Self-Assessment Tax Return but you can take off costs such as mortgage interest and letting agency fees from the rent before you declare your income.
Maintenance costs, annual safety checks, Landlord’s Insurance and Rent Insurance are all costs that need to be considered, even though they may not be taken into account by the mortgage lender.
A Buy-to-Let portfolio can be on more than one property, so it is worth checking the following before carrying out your application. There is a minimum valuation that some lenders uphold, which means that they will only lend on properties valued above a certain level. Although this is usually around £40-50,000, there are some that specify minimum valuations at a level of £100,000 and above.
There are also lenders that will restrict the number of properties you can or the maximum amount that they will lend to you in total.