Buy-to-Let Mortgages Made Simple

Should I have a repayment or interest only mortgage? 

A very popular question! And not one with a right answer really as it very much depends on your future aims and why you are looking at buy to let. Some people that just want one property may want to try and get the mortgage repaid by their retirement age. If you have multiple properties though this is unusual and it is more common to just pay the interest. After all, there are buy to let lenders with no maximum age out there so you could keep your mortgage much longer than you would on a residential property.

How much income do I need for a buy to let?

Probably less than you might think! Most lenders have a minimum income to do a buy to let which is usually around £25,000 per year. However, there are some that do not have this requirement and so will lend on lower incomes. For example, if you’re retired or even if your only income is from renting properties.

Am I too old for Buy-to-Let Mortgages?

Generally, no. There are lenders that will go far beyond retirement age for a buy to let mortgage so as long as the rental coverage calculation works then it is possible to get a mortgage later in life.

How is a Buy to Let mortgage different from a residential mortgage?

A Buy to Let mortgage will tend to have certain differences compared to a residential mortgage. The rate may well be a little higher and some of the fees can also be higher. For a remortgage of a Buy to Let property you may not get as many of the incentives like you would for a residential, like free valuation or free legal fees. There is also more emphasis on the property and the rental income rather than your own affordability which can mean you are not as restricted like you are for your own house. Generally as long as you have enough deposit and the mortgage fits the lender’s stress test then the mortgage will be considered affordable.

How much tax will I have to pay on a Buy to Let?

The income from your investment properties is taxable in the same way as any other income you receive. After you have earned over the tax free threshold each year anything over that will be taxed at the current rate. Currently if you are a basic rate tax payer then you will just pay your normal 20% tax on the profits each year. Once you become a higher rate tax payer though you will start to pay a lot more tax. You will also pay tax on the entire rental income as a higher rate tax payer. This can make investing in property a little less appealing for some but there are things you can do to minimise the effect. These are things that tend to need to be discussed on an individual basis but you may be able to consider just one of you owning a property if one person earns more than the other. You could also look at buying as a Ltd company. Don’t forget as well that there is a 3% surcharge payable on your stamp duty when you buy an investment property

Should I use a limited company to buy property?

This depends on your long term plan really. Generally speaking if  you want to buy one or two buy to let properties then you probably won’t really benefit from setting up a limited company. This is because you will usually pay a higher rate for the privilege and if you want to use the income each month there won’t be much of a tax saving! If though, you want to buy several properties and maybe don’t need to take the profit out of the company each year so you can let it build then a limited company may well be worth looking in to. Our experts help lots of people invest in property so whether your plans are big or small we will be able to help you!

Most Buy-to-Let mortgages are not regulated by the Financial Conduct Authority.

For more information on Buy-to-Let Mortgages, please contact us today