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A buy to let (BTL) mortgage is used to purchase a property that you are planning to let out for profit. There are a few additional acceptance criteria for BTL mortgages that you would not need to satisfy for other mortgage types. These are:
Buy to let mortgages often have higher fees and higher interest rates than a standard residential mortgage.They usually also require a minimum of 25% deposit.
BTL mortgages are not regulated by the Financial Conduct Authority (FCA), unless the property that you are purchasing will be rented to close family members only.
Loan calculation and acceptance are based on the potential rental yield (income from the property) rather than your income. Given that they are predominantly interest-only mortgages, the monthly mortgage repayments are also much lower than for a repayment mortgage.
As the amount that you can borrow on a BTL mortgage is based on the profitability of the property, rather than your income, the lender will judge mortgages on a case by case basis. The general rule is that they will expect your rental yield to be at least 25% more than your monthly mortgage payments.
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It’s important not to assume that your buy to let property will always be occupied. There are a range of circumstances, from renovation through to difficult tenants that may mean that you are not receiving a monthly income.
A strong rental protection policy can ensure your peace of mind. Higher level policies are sometimes able to cover you for periods of property vacancy.
It’s important to be aware that the property sale will not always cover the lump sum payment. There are a wide range of circumstances that the sale price of your rental property will not cover your outstanding mortgage amount.
A crash in the property market, for example, could substantially lower house prices. We’re also yet to establish what the full effects of Brexit will be on the property market.
Market forces may also mean that a house may not sell in the time frame you require.
There are a number of tax advantages and some disadvantages in taking on a BTL property. First of all, you’ll pay 3% higher stamp duty than on a residential property.
You can reclaim some of the costs associated with being a landlord, when you complete your self assessment on the rental income. Tax relief on; property repair costs, council tax and utilities (if you pay these yourself, not if the tenant pays) and letting agency fees can all be reclaimed. If the earnings from your rental property push you into a higher tax band, however, your overall income tax bill will be higher.
You are also liable for capital gains tax of between 18% and 28%, if you decide to sell your BTL property. Any remaining profits made on the sale of the property are also liable for income tax and can affect your tax classification for the following year.
You can find both mainstream high street lenders and specialist mortgage providers offering buy to let mortgages. Finding the right lender can be confusing and time consuming, so using a mortgage broker can be helpful. This is especially true if it is your first mortgage or your first BTL mortgage.
A buy to let (BTL) mortgage is used to purchase a property that you are planning to let out for profit. There are a few additional acceptance criteria for BTL mortgages that you would not need to satisfy for other mortgage types. These are:
FCA disclaimer
Based on our research, the content contained on this website is accurate as of most recent time of writing. Lending criteria and policies may change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice.
Some types of buy to let, commercial, bridging, mortgages are not regulated by the FCA.
Please think carefully before securing other debts against your home or releasing equity from a property you own. As a mortgage is generally secured against your home or your investment property, it may be repossessed if you do not keep up with repayments on your mortgage.
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