Buy to let

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Buy to let

A To-let property is a property that you buy with an intention to rent it out to tenants. If you are someone looking to make rentals a source of income and turn it as a business, you could opt for a buy-to-let mortgage. The factors and regulations to avail a to-let property are very similar to your conventional mortgages with very minute differences in certain aspects. Let’s look in detail at what a to-let mortgage is.

Who Can Avail A Buy-to-let Mortgage?

Though open to all, a buy-to-let mortgage has some factors that it considers when it comes to the processing and approval of such mortgages. If you have to be eligible to get a buy-to-let mortgage, you need to –
  • Invest in a house or an apartment
  • Be a landlord with an existing home (either outright or on mortgage)
  • Afford a property
  • Maintain a good credit score with consistent bill clearances and no outstanding balances
  • Have a steady income that can help you repay your mortgage
  • Have a significant age span, where the tenure of repayment is well before your retirement

How It Works?

A buy-to-let mortgage is very different from your residential mortgage.
  • They require a higher deposit (usually 25%).
  • They have higher interest rates.
  • Their associated fees and costs are higher.
  • They are mostly interest-only.
Besides, lenders also consider a crucial factor, where they check if you could repay if your property is empty for over six months. There is also the fact that your monthly rent should be at least 25% more than your monthly mortgage payment. With so many factors involved, the ideal solution would be to talk to mortgage advisors who have an in-depth understanding of the market.

What Is The Credit Limit In A Buy-to-let Mortgage?

The amount of money you can borrow in a buy-to-let mortgage depends on the amount of rent you are more likely to receive every month. And this in turn is dependent on the area of your property, its vicinity, locality and more factors. Like we mentioned, the rent has to be at least 25% more than your monthly mortgage payments. To get an idea of how much rent is ideal for your property, we recommend you get in touch with property managers, agents and people in the real estate circle.

Where Do I Find A Buy-to-let Mortgage?

You can find a buy-to-let mortgage in several financial institutions and banks. But considering the different factors and regulations, it’s best to move your mortgage application with the help of a mortgage broker or an advisor.

What Do I Do When There Is No Rent Coming In?

Running a buy-to-let property is a calculated risk. You need to be prepared for the best and the worst. There would be times when your property would be empty and you will have a hard time finding long-staying tenants. So, our suggestion is to plan for such instances well in advance by saving up a little from your monthly rentals. This will help reduce some financial burden during times when your apartment is empty.

What Should I Know About A Buy-to-let Property And Tax?

Capital Gains Tax

Otherwise called CGT, this is charged at 18% on your buy-to-let property and at 28% if you are an additional-rate taxpayer. If you made profits on selling your buy-to-let property, you should pay your CGT and you should declare this on your tax returns.

Income Tax

Depending on your band, you will be charged an income tax of 20% to 45% for the rents you receive. This should be declared on your tax returns as well.

Mortgage Interest Tax Relief

With the rules on this being changed, your finance costs reliefs are restricted to your basic rates of income tax. Finance costs include interests, interests on money borrowed for furnishing, fees levied when borrowing additional money to repay mortgages and more. Currently, there are no reliefs applicable for your mortgage’s capital repayments.