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Buy to Let Mortgages

The buy to let market is a specialist market and at Fairview Financial we recognise the needs of the experienced professional investor as well as the new landlord looking to start out.  In recent times, legislation has made the process of purchasing and the subsequent management of a buy to let property substantially more complicated.






WHAT IS A BUY TO LET MORTGAGE?

With a buy to let mortgage, you will take out a mortgage on a property that will then be rented out. Like residential mortgages, buy-to-let mortgages are even more perplexing, with each bank or building society having their own definitions and criteria. As a result, it is recommended that you always consult an independent mortgage adviser such as Fairview Financial who can give you the most current and relevant information.

Changes within the market now mean that Fairview Financial can provide invaluable advice. You may be an experienced landlord looking to purchase through a limited business or you may be a first time buyer or just looking to purchase your next buy to let. We can help and advise in all cases.


RESIDENTIAL VS. TO LET MORTGAGES

It is worthwhile being aware of the following main differences between residential mortgages and buy to let mortgages:

• Often, you will arrange buy to let mortgages on an interest only basis. This means that you will not pay off any capital in the monthly repayments - unless you make overpayments - but would need to repay the capital in a lump sum at the end of the mortgage, often by selling the property.

• Interest rates on buy to let mortgage rates are usually a little higher than residential loans. If you purchase through a limited company, rates can be higher again but with potential tax benefits.

• Unlike a lot of residential mortgage rates, you will be required to put down a bigger deposit, usually in the region of 25%. Fairview Financial work with you to find the right rate with the right deposit.

• How much you can borrow will be based on the earning potential and profitability of the profit (i.e. the rental income) and sometimes your earned income. The rent must more than adequately cover the monthly mortgage payments. Every lender has its own unique formula and some will lend more generously. Fairview Financial will help to determine who to use on this basis.

There are various ways that you can seek to make a return on your investment; the property value and the ongoing rental income are the obvious ways. As with any investment, buying an investment property does carry risks, so it is important to speak to Fairview Financial to make sure you are clear where the pitfalls may lie.

 












CHANGES WITHIN THE BUY TO LET MORTGAGE MARKET

Changes have been made to the way we can now operate buy to let mortgages. Since the 2015 Budget, tax relief available for interest has been substantially reduced. The new rules which were introduced in April 2017 mean that there has been a change in the way income is calculated.

Until April 2017, tax was payable on one’s net rental income after deducting allowable expenses such as mortgage interest. This meant that 40% tax-rate landlords could claim tax relief at their highest rate.

With the new changes being brought in over the next few years, from April 2020 tax relief can only be reclaimed at the basic rate (20%), despite the rate of tax the landlord pays. This change will slowly be phased in between now and 2020. The gradual shift in mortgage interest allowance is 0% in 2016-17, 25% in 2017-18, 50% in 2018-19, 75% in 2019-20, 100% in 2020 onwards.

While the move mainly affects those who already pay higher-rate income tax, it will push some basic-rate taxpayers into the higher-rate bracket once their rental income has been taken into account. The increase in taxable income might also affect claims for Child Benefit and Income Tax Credits. Higher-rate taxpayers can no longer offset all their mortgage interest against rental income before calculating the tax due.

This change does not apply to those who own property through a limited company and as a result, it may prove beneficial to speak to us at Fairview Financial about looking into changing the ownership although this is also a conversation to have with an accountant too. Companies will also pay corporation tax at a fixed rate irrespective of the size of the profits although it must be noted that corporation tax rate is currently at 20% reducing to 17% in 2020. Please contact Fairview Financial to take a look at the alternative mortgage options available.

Fairview Financial can review your current mortgage at no cost. We have access to thousands of remortgage deals.

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