In this article, we will be discussing a few common dilemmas faced by our experts in daily business. We will be picking Buy-to-let mortgages and will try to answer the most asked questions in layman terms. The article will try to cover most of the aspects but it is always advisable to consult us if you have more specific doubts in your mind.
What’s a buy-to-let mortgage?
These mortgages are intended to enable you to buy the property for renting purposes instead of living in it. The loan amount basically depends on the rental income you might get from the property. It also considers your income source in case the rental stops in some circumstances. This mortgage needs a higher down payment from your side.
It is pretty much understandable that buy-to-let mortgages are specifically for the people who want to invest in real estate. Most lenders will ask you to carry with the standard mortgages if you are investing in a new property for To-Let purposes.
Who can take Buy-to-let mortgages?
As these mortgages enable the people to be an investor and become the new landlords in the rental market. There are certain conditions to opt for such mortgages. Since the mortgage demands more money to deposit which can range between 25% to 40%, this can act as the first blocker in opting for the mortgage. The other conditions are listed below:
– Applicants should be 21 years or older than that. In the case of a joint application, the participants should be 18 years or older.
– The rental yield that is your rental income should be around 125% of your mortgage payment.
– The deposit ranges from 25% to 40%.
– Some lenders put a cap on minimum income.
How does a buy-to-let mortgage work ?
The plan varies as compared to how the standard residential mortgage works. That means you can see fixed, variable, discount, and all types of interest rates. It depends on you which type of interest and lender to choose. It is best to take expert help in this. The buy to let mortgage costs little higher than the standard mortgage rates. This also includes below costs in addition, so include this also while calculating the mortgage
– Stamp duty, surveyors’ fees, and other charges when buying
– Tax on rental income
– Broker or Agent’s fees
– Maintenance and repairs for the property
Are buy-to-let mortgages interest-only?
As mentioned, all kinds of mortgages are available for BTL. People prefer interest only mortgages because that will help them in reducing the monthly payment to the lender. This interest is generally the rental they are generating on the property. The principal amount is expected to pay at the end of the term. The interest-only mortgages depend upon the type of lender you are having, the amount deposited, the budget you are having and the current incoming income. Kindly refer to our previous articles to get more info on the mortgages.
How much can I borrow?
How much you can borrow depends on how much you can deposit and how much rental income you are anticipating. A BTM requires a larger deposit along with upfront fees and a higher rate of interest as compared to a residential mortgage. Lenders also expect you to earn more rental income than your monthly repayment. You can talk to your lender about using your current residential mortgage to BTM mortgage or can look for a lender with less interest rates. Some BTM have a cap on the number of properties you can mortgage at any time. In either case, look for an expert’s help.
What kind of tax concession will I get with buy-to-let mortgages?
There is no great news with regards to BTL mortgages. As of 2020, the rental income won’t be able to help you with mortgage expenses. Instead, you will receive a tax credit of 20% based on your mortgage interest payments. This will be more for the taxpayer in the higher bracket. So in theory, one-quarter of interest payments will be deducted from the tax, while the rest will receive the tax credit. This will affect the private landlords who own property privately and not through business. The tax credit rules are different for the business or self-employed.
Can I live in my buy-to-let property?
No you can’t live like that. You will be violating your mortgage terms and it will be considered as a punishable act by law. The lender has the right to call the mortgage and can ask you to pay the 100% loan. Your credit report will be affected because of the breach. This may affect your refinancing opportunities. This won’t get solved by requesting the lender as it is illegal by the FCA itself and the lenders have to be bound by this. A relative can live under certain conditions but again he cannot occupy more than 40 % of the property.
You can only move in the property if you change the BTM to a residential mortgage. You can ask your lender or look for another lender who can do that. But again this will affect the budget you have designed for the repayment.
These above mentioned problems won’t stand a chance if you have already paid your mortgage and capital. You have to declare it through proper legal channels.