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Buy to Let Mortgage
Kirsty Hill from JXP joins the Mortgage and Protection podcast to share her expertise on Buy to Let mortgages.
What is a Buy to Let mortgage and how do they work?
You take out a Buy to Let mortgage to buy a property for investment purposes. If property prices rise, you’ll hopefully benefit from growth – but in some instances you might also receive a monthly income, depending on the mortgage payment and the rent you’re able to charge.
The main difference is that with a Buy to Let mortgage the home is let out to somebody, whereas with a residential mortgage you will be living there yourself.
How is a personal Buy to Let mortgage different to a limited company Buy to Let?
They’re set up for different purposes. Some people might become accidental landlords – they might inherit a property, decide not to sell it and turn it into a Buy to Let.
Other people specifically go out to find Buy to Let. They might just want one or two properties, or they might want to build a portfolio. This is where it’s really important to seek independent advice on how to make it tax-efficient. You’ll primarily have personal tax if it’s in your personal name or corporation tax if it’s a limited company name. Capital Gains Tax can differ as well.
When you have either a property in your personal name or a limited company name, some things are similar. The stamp duty payable is the same, but a limited company often faces higher interest rates and mortgage fees. There are different pros and cons to both, to speak to an independent advisor.
As a mortgage broker we are more than happy to come up with the most suitable option for you, depending on what you’re looking to do with your property, whether you’re looking to build a portfolio or keep it to one or two.
Who can get a Buy to Let mortgage? Can anybody get one?
Yes, some people think that you have to be a homeowner or you have to earn a certain amount of money. That does help, and it does open up options to different lenders. But there are lenders out there who will allow a First Time Buyer to buy a property. They just have different criteria.
The main thing is to do your research. There’s some really useful information on the government website about becoming a landlord. Get advice to make sure it’s the right situation for you. You wouldn’t want to buy a Buy to Let property and invest all your capital in that, if in six months’ time you start thinking about buying a residential property – because you wouldn’t have any deposit to put into it.
It’s all about getting advice early on when you’re considering a Buy to Let. But absolutely anybody can in theory get a Buy to Let mortgage, as long as you fit the criteria for a suitable lender.
How much can you borrow on a Buy to Let mortgage and what sort of deposit do I need?
How much you can borrow varies. On a residential mortgage it’s based on your personal income and outgoings, but on a Buy to Let mortgage it’s based primarily on the rental income.
The lenders use an affordability calculator to assess the rental income with a ‘stress test.’ If the rent doesn’t necessarily fit in terms of achieving the loan amount, you can in some instances use your personal income to top up that mortgage. You’re basically guaranteeing that if there’s not enough rent to cover the mortgage, you can afford to meet that payment as well, after your other commitments.
For the deposit, you need a minimum of 20% and ideally 25%, but lending is based on what rental income could support the loan amount.
What costs are involved?
You would need a solicitor to act on your behalf. If you’re buying in your personal name that’s standard conveyancing. But buying under a limited company name you will need to seek out a specialist and the cost can be a little bit more.
Stamp duty can be quite a commitment. If your Buy to Let is your second property, there’s an additional levy you have to pay on top of the standard stamp duty charge. These are things we can help you with and discuss when we have our initial consultation with you.
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We’ve got customers all over the country, as we can deal with you over the phone, online on teams. So you don’t have to be based in the Sussex region to use us. We have access to the whole of the market and we’ll happily chat to you wherever you are.
Is it illegal to rent out a house without a Buy to Let mortgage? And is it illegal to live in your own Buy to Let property?
A common situation is that someone buys a property, lives in it with a fixed rate mortgage, then they meet a partner and want to move in with them. They decide to rent out their property, and they apply to the existing lender for ‘Consent to Let.’
It’s imperative that you do that, because letting out property without consent is in breach of your mortgage contract. Different lenders have different terms and conditions. Some have time limits on how long you have Consent to Let for. Some have charges they might add on as a one-off or they might increase the interest rate.
If you think you’re going to find yourself in that situation, call us and we can look at your existing mortgage deal. We can look to swap it onto a Buy to Let for you – there are options, so don’t jump into anything, get some advice.
In terms of living in your Buy to Let property, I’m afraid that’s a no-go. Again, you could have a change of circumstances where perhaps you break up with a partner and need to move into your Buy to Let. We can look to remortgage it onto a residential mortgage – that’s absolutely allowed. But you couldn’t live there with a Buy to Let mortgage on the property.
Should I choose interest only or repayment on a Buy to Let mortgage?
You can choose either one – it’s completely your choice depending on your personal circumstances and wishes. Some people are quite happy to have a Buy to Let mortgage on Interest only, because they’re interested in capital growth and want to maximise the monthly rental income profit.
Otherwise you could have it under a repayment mortgage. Somebody could be looking at property as a pension income, so they want the mortgage to be completely paid off by the time they reach retirement. Then they can use that monthly rental income as a pension, for example. Again we can advise on both situations and look at quotes to find the most suitable option for you.
How many Buy to Let properties can I own? Is there a limit?
There’s not necessarily a limit, but the criteria changes. Once you hit four owned Buy to Let properties, you’re classed as a portfolio landlord. At this point different stress tests are involved. When you hit 10 properties it changes again. But some people have hundreds of properties. Whether they’re owned in your personal name or limited company name will influence how you manage those and how far you want it to go.
But there’s no limit whatsoever other than what you can put down to continue to increase the portfolio. I do have some clients who are full time landlords. That’s what they do. It can start out as a bit of a hobby, with one or two, and people often enter quite cautiously. But I’ve got one client that has just grown and grown their portfolio. It can be exciting and we can guide you. We’ve got great experience here.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.
