Buying to let can be a serious proposition for some people. Potential borrowers should understand that the letting of property is a complicated business and it is important to get appropriate advice.

We are able to arrange the mortgage but cannot give advice on buying to let as a business proposition. Nothing in this leaflet should be taken to indicate that buying to let is a suitable business proposition for any particular person. Before entering into the Buy To Let market you should seek independent tax advice as well as legal advice.

1. Costs to consider

• Stamp duty. Generally, the purchase of an investment property will see you pay a higher stamp duty amount
• Conveyancing costs
• If purchasing as a LTD company you will also require separate legal advice as in most cases you will be giving a personal guarantee.

This advice generally comes at an additional cost

• Agent’s fees
• You may need to furnish the property before letting in order to maximise your return
• Owning a BTL will generate an income which will need to be reported to HMRC. Although this can be done by yourself I would suggest discussing with a qualified accountant.

2. Mortgage Loan Repayment

• A Repayment mortgage is the only way to guarantee repayment of the loan at the end of the mortgage term and is the most cost-effective method over the full term of the mortgage
• If you intend to set up the mortgage on an Interest Only basis, this means that the monthly payments are only repaying the interest on the money you have borrowed; at the end of the term you will be required to repay the full value of the loan. In this case you should have a clear strategy for the repayment of the loan at outset. If you do not have sufficient funds to repay the outstanding balance at the end of the term the lender has the right to repossess and sell your property
• Early Repayment Charges. The recommended mortgage may have early repayment fees which could be payable should you wish to switch or repay the mortgage in full during the initial period. Please refer to the Key Facts Illustration* to ensure you are aware of any fees on early repayment.

3. Management of the Property

• It is recommended that all applicants let the property through a member of the Association of Residential Letting Agents (ARLA). These agents may provide practical assistance with selecting a property in a suitable locality, advising on rents, location of tenants and general property management
• The services of managing agents would cost from 10% to around 15% of annual rents excluding VAT. Very often this is taken up-front for the full term of the rental contract and can impact on cash flow
• It is also possible to insure against loss of rent and to cover related legal costs, which could be around 5% of annual rent
• Provision should be made for water rates, property insurance, maintenance and sundry expenses.

4. Political and Economic Factors

• Applicants should bear in mind the possibility that rent control for Assured Tenancies could be introduced
• There could be a fall in the value of the property – past performance is not necessarily a guide to the future and the value could go down as well as up. In the future, this could mean that your mortgage loan exceeds the property’s current market value, i.e. you could be in a ‘negative equity’ situation
• There could be a decrease in rental income due to adverse economic conditions or as a result of a substantial increase in the supply of rented accommodation in a particular area. Rents will also be affected by the location and condition of the property
• Interest rates could increase on any mortgage taken to acquire the property without a corresponding increase in rental income to cover the interest.

5. Business and Investment Factors

• There could be difficulties with tenants in breach of tenancy agreements, including failure to pay rent and in obtaining possession under the relevant legislation.
• HM Gov introduced rules to prevent Landlords from evicting Tenants for rent arrears as part of the COVID pandemic measures. This measure could be introduced again. There may be periods of rental void when the property is not tenanted and so no rent is receivable
• Investing in a single property can result in a lack of spread which should not usually be contemplated where the applicant does not already have a good spread of investments in his or her overall investment portfolio
• The lower the sum borrowed the more the rental income is likely to exceed the expenses and outgoings
• It will not normally be in the applicant’s interest to realise, cancel or surrender any existing investment in order to purchase a property to let.

6. Tax

• The disposal of the property may be subject to capital gains tax under current legislation
• The rental income will be liable to income tax; it may be possible to offset the loan interest against some of the rental income when calculating the taxable income
• Appropriate advice should be obtained from the applicant’s accountant on the taxation of letting a property.

7. Buy To Let Mortgages and Your Rights

• The FCA (Financial Conduct Authority) has been responsible for regulating most mortgage sales from 1ST January 2013
• It is very important to understand that very few Buy-to-Let mortgages are regulated by the FCA
• Some mortgages are considered as Consumer Buy-to-Let and are therefore covered by the Financial Ombudsman Service.

The reason for this classification may be one of the following:

• You have inherited the property, which you have previously lived in and decide to rent it out / or
• You / your immediate relative intend to live in the property in the future.

Or

• Your Buy-to-Let mortgage is considered a Business Buy to Let and is therefore NOT regulated by the FCA.

The reason for this classification is:

• You are entering into a BTL agreement to buy a property and at the time of the purchase it is intended that the property will be let under a rental agreement by someone other than yourself, your spouse, partner or immediate relative and it has not at any time been occupied by you your spouse, partner or immediate relative.
• This means that you will not be able to take complaints about this type of mortgage to the Financial Ombudsman Service. Additionally, you will not be able to seek redress from the Financial Services Compensation Scheme if Quilter Mortgage Planning Ltd becomes insolvent.

8. Buying in a LTD company name

• There are many lenders offering clients the option to buy in a company name but you will find a reduced choice of lenders and generally more expensive products
• Buying in a company name requires additional checks to be carried out that include a Companies House search to confirm the company’s name, company directors and the SIC code. The SIC code confirms what the business has been set up as and the majority of lenders require the code to be one of the following 3, 68100, 68209 and 68320
• Separate legal advice is required as you will be providing a personal guarantee on the mortgage. This may see you paying more for the legal advice
• A separate bank account will need to be set up and used for the mortgage payments. This account needs to have the exact same name as the company and have the same signatories.

9. Energy Performance Certificate (EPC) 

• In April 2018 the Minimum Energy Efficiency Standards (MEES) was introduced and from the 1st April 2020 it has been a requirement to have an EPC rating of E or above in order to rent your property. There are some exemptions, but you should seek independent advice if you think that your property qualifies for this
• From the beginning of 2025 any newly rented property will need a rating of at least C, and any existing tenancy agreements will have until 2028 to make the change
• There are many ways to improve the EPC rating of your property including insulation, double glazing, solar panels and low energy lightning to name a few
• You should give careful consideration to the property you buy or already own if it is at the lower end of the EPC range. There are discussions about increasing the minimum to a B by 2030 which could see landlords having to invest in their property portfolios
• You should also be aware that many mortgage lenders are now offering different products for properties with an A, B, C EPC rating. This may see you having access to a lower rate or reduced fees.

For free advice on your Buy To Let mortgage, get in touch with me today!

*Key Facts are provided to you at the point of agreement. Please ask if you require a copy.