If you are planning to buy a property to rent out, then you need a buy-to-let mortgage. You may also need this type of mortgage if you are planning to let a property that you already own.
Can I get a buy-to-let mortgage?
Many lenders have strict criteria when it comes to buy-to-let mortgages. Most stipulate that you must be over 25 and will not reach 75 before the end of the mortgage term. It’s usually difficult to get a buy-to-let mortgage as a first-time buyer because lenders like to see you have some experience of the market.
How much can I borrow?
The criteria with buy-to-let mortgages is slightly different to residential mortgages. The lender will assess how much the property could earn in rental income and take this into consideration. They typically require the rent to be 125% of the mortgage payments.
You will also need a deposit of at least 25% depending on the lender. Jordan Lynch will be able to discuss your situation fully and advise how much you can borrow and how much deposit you will need.
What costs are involved?
As with buying a residential property, you will need to pay a fee to a solicitor and a surveyor when you buy a rental property.
From 1 April 2016, Stamp Duty Land Tax is charged at 3% above the current rates when you buy an additional property, which will affect many of those who are buying to let. Find out how much you will have to pay with HMRC’s stamp duty calculator.
There will also be a mortgage arrangement fee and it is worth noting that the interest rates tend to be 1% to 2% higher than with residential mortgages.
Jordan Lynch will explain all the costs, interest and fees involved with the mortgage before you go ahead with the application to help you make a decision and budget accordingly.
I’ve inherited a property with a mortgage outstanding. Do I need a buy-to-let mortgage?
This all depends on the terms and conditions of your current mortgage. If the property was previously a residential home, then the lender may require you to change to a buy-to-let mortgage. In any case, it is important that you inform the lender of the change in circumstances.
I want to rent out my own home to tenants. Do I need a buy-to-let mortgage?
Again, this depends on the terms and conditions of your current mortgage, so you should speak to your lender at the earliest opportunity. If you are advised to switch to a buy-to-let mortgage, Jordan Lynch will be able to offer advice.
Do your homework
Before buying a new rental property, you should treat this as you would any important business decision and do some research. Think carefully about where to buy, who you want to rent to and what condition you want them to keep the property in. Consider the area you choose to buy in and research the local rental market to ensure there is a strong demand for your type of property and that the rent will cover your mortgage.
If you are planning to buy a property that needs a lot of improvements, make sure you can afford to pay the mortgage without a rental income for the period of time it will take to complete the work.
Other things to consider
Remember that your mortgage also needs to cover expenses such as maintenance fees, repairs and management fees.
You can claim tax relief on some costs, such as mortgage interest payments and agents’ fees, but the amount you can claim will be gradually reduced over four years from 2017. Once the reductions are complete by 2020, landlords will see tax relief capped at the basic tax rate of 20%, rather than the higher and top rates of 40% and 45%.
You will need to file a tax return each year when you are a landlord and you are advised to discuss any tax relief matters with an accountant to make sure you are reporting your accounts correctly.
As a landlord, you are obligated to carry out certain duties, such as performing an annual gas check on the boiler and other applicable appliances. New rules are also coming in that require you to fit smoke and carbon dioxide alarms and protect from Legionnaires’ disease.
It is advisable to take out buy-to-let insurance to protect yourself and your home from any unforeseen incidents and loss.