Buy to Let Mortgages

Over the last 17 years I’ve seen the Buy to Let mortgage market change a lot, but the basics have remained the same.

Many of my clients have become landlords through wanting to keep their current home and using it to fund an onward purchase, or remortgaging to buy an investment property. Whatever reason you have you still need to understand the tax implications of owning a second property.

As the property will be generating an income you’ll be required to complete a tax return each year, which if you are employed will be a new experience. Our advice before going into any Buy to Let mortgage is to seek Independent Tax and Accountancy Advice as there are many costs to consider and it’s worth finding out if the property will be making, or costing you money.

There’s a helpful guide to many aspects of Buy to Let ownership in the Blog section.

Unlike a residential mortgage where the lender is purely focused on your income and outgoings the Buy to Let mortgage lender needs some basic requirements to be met before lending any money. Therefore, you must be able to show that you;

As always, the above is only a guide as mortgage lenders can differ, but if you want to Buy to Let, get in touch with me to discuss your individual circumstances and I’m sure we’ll find a solution.

Let’s take a very simple purchase of £200,000.

You’ll need a 25% deposit of £50,000 which leaves a mortgage requirement of £150,000. It’s the rental figure the property will generate per month that will decide whether you can borrow that £150,000.

Now, there are many rental assessments out there but let’s use an example.

Take the rent of £750 per month, multiply it by 12 and divide by 145%. Divide again by 5%. This would give you a loan size of £124,137. As you can see this is far less than required so you would have to increase your deposit to £75,863.

But if the rent was £1,000 per month and we used the same calculations you would get a loan of £165,517. You now need to remember that the maximum the lender will offer is 75% so although the rental income will generate more, it’s irrelevant, with maximum lending kicking in at £150,000.

Once again I would suggest speaking with an accountant about the tax position of each structure as it can make a big difference to the profitability of the ownership. MK Mortgages can help with this by providing two sets of data to show the difference between the mortgage rates that will be offered.

As a general rule of thumb, the Ltd. company mortgage rates are higher and come with higher set up fees, plus require personal guarantees to be given, again another cost.

I have some guidance notes on the differences and benefits between the two options, but when setting up a company to purchase a Buy to Let property, it needs to be a Special Purpose Vehicle (SPV). The company will also need a specific Standard Industrial Classification code (SIC). These ideally needs to be one of the three from the below list.

I could easily fill several pages with information on Buy to Let mortgages, so if you’ve read enough and want to know more about your own choices, please get in touch.

! Please note, some Buy to Let mortgages are not regulated by the Financial Conduct Authority.