What is a Buy To Let Mortgage
A buy to let property is a property you wish to purchase and rent to tenants. You are not allowed to legally live in the property. If you are a First Time Buyer you can purchase a buy to let property but the amount of lenders available is restricted and there are extra checks the lender makes in these circumstances.
When buying a buy to let property there are a few things you may need to know.
- The amount of loan you can borrow is pretty much dependent on how much rental income you get
- You will have to pay an extra 3% stamp duty on top of your normal stamp duty. If the property is below the value at which stamp duty becomes liable you will still have to pay the extra 3% of the purchase price
TIP. If you are purchasing a second property, ask your conveyancer/solicitor of the figure you will have to pay.
Buy To Let Q&As
You can set up a Buy to Let mortgage on Interest Only or Repayment (Capital and Interest) the choice is up to you.
Interest on mortgages used to be tax deductible but the rules have recently changed so you will need to get independent tax advice on this subject because it depends on your circumstances and income positioning as to what you can offset for tax purposes and what you cannot.
The minimum deposit required for a buy to let mortgage is 15% but you only have one or two lenders on the market that will do this and the criteria to fit this is hard to achieve.
If you have a 20% deposit, then you will have more lenders available to you.
If you have a 25% deposit, then have most of the Buy to Let lender market open to you and the rates are much lower than if you have a 20% or 15% deposit
If you are a First Time Buyer, then a minimum 25% deposit is required.
Yes, you can get a Buy to Let as a First-time buyer, but the number of lenders you can use are restricted, but it can be done. The criteria on this is very strict as generally they want a 25% deposit and you need to be earning enough money to be able to purchase the property yourself on a residential mortgage. An example of this is if you were earning £25000 and you wished to borrow £100000 then this may be possible but if you earn £25000 and wish to borrow £250000 then the lender will not be able to help.
All mortgages have the same requirements for proof of income, bank statements the same credit search checks etc so in essence they require as much paperwork as a residential mortgage. Due to the recent regulatory procedures lenders now must follow. Buy to Let mortgages are still available in abundance but again the lender you will use or the rate you will pay will depend on many factors such as: Are you buying the property in your own name or as a Limited Company? Do you own four or more Buy to Let properties? Do you currently own the property you live in? Are you a first-time buyer? What type of property do you have i.e. a House of Multiple Occupation? Are you renting to students? Is it a flat? I could go on and on, but a good adviser will know the exact questions to ask you and find a mortgage that’ fits your requirements.
Get in Touch with our advisers to see if you are eligible
Yes. Buy to Let rates are higher than residential mortgage rates. Most costs, fees and charges are normally higher to. With most lenders they offer different rates with different fees, for example; some lenders offer low rates with higher fees and higher rates with lower fees. Which one to choose is easy really, you just work out the monthly payment difference between the two rates and multiply that by the term of the product, let’s say 2 years on a 2-year fixed, then if that figure comes to more than the difference between the arrangement fees then go for the one with the cheaper of the difference between the arrangement or monthly payments over that two-year period. A financial example is below:
The two figures below are not real interest rates and are used ONLY for illustration purposes
The monthly payment below is based on you borrowing £150,000 on repayment over 25 years:
2 year fixed @ 1.49% – Arrangement fee £999 – Valuation fee £0 (free) – Solicitors fees £0 (free) – Monthly payment £599.20
2 yr fixed @ 1.99% – Arrangement fee £0 (none) – Valuation fee £0 (free) – Solicitors fees £0 (free) – Monthly payment £635.05
Therefore, the difference in the arrangement fees between the two rates is £999 but the difference in the monthly payments is £635.05 – £599.20 = £35.85 so multiply this by 24 months (2 years) = £35.85 x 24 = £860.40.
So, £999 is more expensive than £860.40 so it is in fact cheaper to go on the higher rate and pay no arrangement fee in this instance.
As I said please be careful as this is not always the case so check with one of our advisers first to see which is best
Whether you choose to go on a higher or lower rate mortgage does depend on several factors like the amount of mortgage you have, the term of the mortgage and the rates and fees themselves. If you get it wrong, it could cost your thousands so please speak to one of our advisers to ensure you are getting the best deal for you