Buy to Let

Buy to let refers to the purchase of a property specifically to let out to produce a rental return and income. Unless you are a cash buyer, you will need a buy to let mortgage. A standard residential mortgage only applies to those who plan to live in the property whereas a buy to let mortgage will allow you to rent out your property to tenants 

The rent on a buy-to-let property should cover:

• the cost of the mortgage
• expenses, typically building insurance, repairs and any letting agent’s fees

Buy to let mortgages are a way for existing investors and new landlords to take their first steps into the rental property market. 

1. Put down your deposit – The minimum deposit for a buy to let mortgage is usually higher than that of a standard mortgage and residential mortgage – usually at least 25% of the property’s value (but this can vary between 20-40%)
2. Interest-only payments – Most borrowers take out an interest-only mortgage for their chosen property – this means that you will pay the interest each month, but not the full capital amount

Pay back the full amount – At the end of the mortgage term you’ll have to repay the capital debt (the full amount of the mortgage. Often, borrowers may chose to save into an ISA (Individual Savings Account) to repay the capital, or may sell the investment property to pay off the debt

With a buy-to-let mortgage, you will only usually pay the interest each month and not the full capital amount, although this may mean that your repayments are cheaper each month compared to a standard residential mortgage, you will need to work out and keep in mind how you will repay the full cost of your mortgage debt at the end of the loans term. 

The cost of your buy-to-let mortgage will also differentiate depending on certain factors such as:

1. The size of your deposit – The bigger the deposit that you put down, the smaller mortgage you will need to borrow. Most lenders will ask for 25% of the property value however this can be higher
2. The interest rate – You will only pay back the interest rate each month, not the full capital amount
3. The loan term – How you will pay back the full cost of the mortgage at the end of the loans agreed term

Whilst eligibility criteria for a buy-to-let mortgage may vary with different lenders, most will require:

• You to be 21 or over  to apply
• A good credit score (most lenders will check your credit history to see if you are a reliable borrow)
• A minimum earning of £25,000 (especially if your a first time landlord)
• A 25% deposit however this can vary and may be up to 40%
•  

Due to increased tax on investment income these days, many people prefer to set up a limited company to purchase their investment properties within.

This is merely a tax wrapper and whilst we cannot give you tax advice, we can help you get these types of mortgages. It is very specialised and we recommend speaking to a qualified accountant before going down this route.