BTL
Whether you are investing in buy-to-let properties to generate an income or for the potential capital appreciation,
choosing the right mortgage is essential
BTL
Whether you are investing in buy-to-let properties to generate an income or for the potential capital appreciation, choosing the right mortgage is essential
Buy-to-let mortgages are provided for properties which you intend to purchase to rent out to a third party. Recently, a new classification of mortgage has been introduced called Consumer buy-to-let mortgages, and these cater for accidental landlords who inherit a property or rent out their existing property to buy a new main residence. The main differences between these mortgages and residential mortgages are as follows:
Interest rate
This will be typically 1-2% higher as lenders view a property that you are not going to personally live in as a semi-commercial transaction and this poses a greater risk to them. Furthermore, research shows that tenants do not look after properties as well as an owner / occupier, and there may be times when the property is unoccupied and there will be no rental income to cover the mortgage payments.
Deposit
Whilst for residential mortgages it is possible to pay as little as a 5% deposit, due to the greater perceived risk to the lenders of a buy-to-let mortgage they like you to have a larger personal stake in a property. This gives the lenders the added peace of mind that they have more chance of recovering their debt should they have to repossess the property, and so a 15-25% deposit is normally required.
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Underwriting
The rental income generated by the property will be taken in to consideration and will determine the amount of money that a lender is prepared to offer you. Typically, the rent needs to cover between 125% and 145% of the monthly mortgage payment (depending on your tax status) and this is usually calculated on a notional interest rate of 5.5%. However, there are a number of variations on this and it is important to discuss your requirements with one of our experts if you have a limited deposit available or are looking to maximise your borrowing.
Whilst every lender has differing criteria, lenders do tend to impose the following: minimum / maximum age, being an existing property owner, a minimum income requirement, and being resident in the UK. Furthermore, the property will need to be in a condition to be let, and there may be restrictions on the number of bedrooms, number of floors or number of units in a block. HMOs’ (Houses in Multiple Occupation) have different criteria from standard buy-to-lets, and may or may not be subject to licencing by the local authority.
Tax savings
Owning an investment property subject to a buy-to-let mortgage can provide you with some tax saving advantages. These could include offsetting interest payments, maintenance costs and agents’ fees. However, we always advise that you speak to a tax expert before agreeing to buy an investment property so that they can advise you of the options available to you.
Whilst the above is just a basic overview of buy-to-let mortgages, we may be able to help you if you are not a property owner, are retired, don’t have a regular income, or live overseas. Please contact us and speak to one of our experts to find out more, as we have access to the whole of the market and are experienced in finding the most suitable mortgage product for any situation. Also, with the upcoming changes to the taxation of rental income, it’s never been more crucial to get the right advice.
Finally, please be aware that it is considered mortgage fraud either to let a property while only paying for a residential mortgage, or to move into a property that you have told the lender you are renting out. Please ensure you have the right mortgage for your circumstances and advise your Chartwell Funding expert of your exact requirements so that we can advise you accordingly.
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Chartwell Funding Limited is authorised and regulated by the Financial Conduct Authority and is entered on the FCA register (www.fca.org.uk/register) under reference number 458223. Registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ. Registered in England number 05875291.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT.