When it comes to investing in rental property, getting the right finance in place is essential. For the majority of investors, that means taking out a mortgage.
The world of buy to let mortgages is ever-changing. With 1000’s of competing products to choose from, and each lender having different criteria, choosing the right mortgage has become a complex task. That’s why it pays to get the knowledge and support of an independent mortgage broker.
Earlier this month, we interviewed Jacqui from The Mortgage Corner in Hessle. She is an independent mortgage broker with years of experience and her own portfolio of investment properties. Jacqui helps clients from across the region and beyond to make the right decisions when it comes to financing buy to let property.
In this Q&A, Jacqui provides answers to all the essential questions when it comes to buy to let mortgages.
Who is Eligible for a Buy to Let Mortgage?
If you are over 18 and have a deposit, you should be eligible to get a buy to let mortgage however…
The reality isn’t that simple!
Once upon a time, it was easy to get a buy to let mortgage. More recently, the lenders have tightened up the criteria and each have different eligibility restrictions.
For most lenders, having a clean credit history and evidencing your income is important. Some lenders will require a minimum income of at least £20k – 25K per year. There are also other factors to consider, such as your age. The majority of lenders will have upper age limits which means that the mortgage cannot end after your 75th birthday.
However, there are a handful of lenders who will allow the mortgage to exceed this age.
An independent mortgage broker will be able to search the market to find the right solutions to suit almost every circumstance.
What is the minimum deposit needed for a Buy to Let Mortgage?
The majority of lenders require a minimum deposit of at least 25% of the purchase price. There are some lenders that will consider as little as 15-20% deposit however the criteria is usually stricter and the interest rates are increased.
As a general rule, if you have a larger deposit you will obtain a more competitive interest rate.
How much can I borrow?
This depends on two main factors – the market value of the property and the projected monthly rent amount.
The lenders expect the monthly rental to exceed the mortgage payment, usually by at least 125% however some lenders will apply a loading if you are a higher rate taxpayer.
It’s important to remember that valuers tend to be conservative when it comes to working out how much a property will rent out for and its market value.
What about the Property?
The property needs to be readily lettable, have a functional kitchen and bathroom with working utilities i.e. gas, water and electric.
Some lenders will only lend on ‘traditional’ build constructions therefore if you are looking to purchase a property that is ‘non-standard’ or needs renovation, you may need a specialist lender or an alternative type of finance, which could be more expensive.
How you intend to rent the property will determine the type of mortgage you can apply for. Depending on whether you let as a Single-Family Unit, House of Multiple Occupation or Self-Contained Flat, you will need to meet specific criteria and there may be certain restrictions.
Is it beneficial to buy in Personal name(s) or through LTD company?
There are advantages and disadvantages to both, it all depends on your personal circumstances and tax position.
Generally, if an investor is looking only to purchase one or two properties then personal ownership usually makes more sense, is simpler and rates are often more competitive.
For investors looking to build up a portfolio, then buying through a limited company can open up opportunities when it comes to multiple owners and provide some tax advantages however the setup fees can be costly each time you arrange a mortgage.
It’s important to remember that transferring buy to let properties from personal ownership into a limited company can be costly.
This is a complex topic and it is worth discussing with your mortgage broker and an accountant before you make any decisions.
Should I have Interest Only or Repayment mortgage for a buy to let?
The vast majority of investors choose to borrow on an interest only basis, for a number of reasons.
Historically, investors have been able to offset the mortgage interest against rental income, reducing their tax liability in the process. However, this is changing and may soon disappear altogether.
Investors looking to maximise their regular income can gain greater monthly returns with an interest only mortgage, as the monthly repayments will be lower however the mortgage balance will not reduce.
Repayment mortgages are an option and can help maximise capital growth and increase equity for when the property is sold.
How has mortgage interest tax relief changed?
Historically, landlords have been able to offset 100% of their mortgage interest and allowable costs against the rental income – reducing the tax obligation in the process.
This is now changing. For the current tax year 2019/20, landlords can only offset 25% of mortgage interest.
From April 2020, the percentage will fall to Nil however you may be able to claim a Tax Relief up to 20% of the finance costs, depending on your tax position.
About the Mortgage Corner
Based in Hessle, and working with clients across East Yorkshire and beyond, The Mortgage Corner is one of the region’s leading independent mortgage brokers.
Jacqui heads up an experienced team of seven, with access to a vast array of specialist buy to let mortgage lenders across the UK. With thousands of products, they are here to ensure you get the best value on the right mortgage.
The Mortgage Corner Ltd is Authorised and Regulated by the Financial Conduct Authority, business registration number 3981158. Your home may be repossessed if you do not keep up the repayments on your mortgage.