Buy-to-let mortgages – what you need to know
Setul Mehta
Financial Services Distribution Leader | ILAG Director | Women in Protection Ambassador | Board Trustee within Education | Follower of Arsenal FC
Pete has just inherited ￡35,000 from his grandma and he’s thinking about investing in a buy-to-let property but has no idea where to start. So, what are the key things Pete needs to know?
Is the buy-to-let market a good investment?
Some of Pete’s friends have warned him that the buy-to-let market is still reeling from the effects of the covid pandemic. They claim, with more people working from home, there has been a population shift away from major towns and cities - reducing the demand for rental properties.
However, figures from Zoopla suggest that the buy-to-let market is enjoying something of a resurgence since covid restrictions eased. Demand for rental properties was reportedly up 76% in January 2022 compared to the same month in the previous four years. In addition to this, the stock of rental properties was down 39% on the five-year average, with rents rising sharply. All of this suggests that a buy-to-let property may well be a wise investment for Pete.
Is Pete likely to be accepted for a buy-to-let mortgage?
To be accepted for a buy-to-let mortgage, Pete needs to:
Pete meets all of these requirements so, in theory, there’s nothing stopping him getting a buy-to-let mortgage.
So what else does Pete need to know about buy-to-let mortgages?
Buy-to-let mortgages are very similar to standard mortgages but there are some key differences Pete needs to be aware of:
领英推荐
How much will Pete be able to borrow?
The amount Pete will be able to borrow is linked to the rental income he expects to achieve. Lenders usually ask that the rent you receive each month is 25-30% higher than your mortgage payment.
Other considerations for buy-to-let landlords
Pete shouldn’t assume that he’ll always have tenants. It’s important that he’s able to make his mortgage payments during periods the property is unoccupied or rent goes unpaid. He will also need savings for unexpected repair bills such as a broken boiler.
As well as these considerations, Pete needs to make sure he’s thought about how he’ll repay the mortgage. He shouldn’t assume he’ll be able to do this in full by simply selling the property. If house prices go down, there may be a shortfall for him to make up.
Buy-to-let and tax
Pete also needs to consider the tax he’ll have to pay as a buy-to-let landlord. As well as income tax on rent, Pete will be looking at paying capital gains tax on the sale of the property. It’s important that he factors this into his calculations when deciding if a buy-to-let investment is right for him.
The importance of professional advice
If Pete’s still keen to go ahead with a buy-to-let investment, the wisest thing he can do is speak to a professional mortgage adviser. They’ll be able to assess his particular circumstances and explain the options that are open to him.
If you’d like advice on buy-to-let mortgages, we’re here to help.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Mortgage Broker and award winning Insurance Adviser specialising in helping legal professionals
2 年There are a couple of bits in the article I’d say are generally true, rather than true in all cases: - You don’t have to be a home owner, some lenders will allow non-owners to have a buy-to-let mortgage. - You don’t have to earn ￡25000. Many lenders have this criteria, but again some have lower income limits. - All buy-to-let mortgages are available as interest only or repayment; it’s down to what works best for the clients situation. I can’t think of a lender that only allows you to have a buy-to-let on an interest only basis. As always the key point is to get advice from a professional mortgage broker, who can walk you through the pros and cons of owning a rental property, as well as finding the right mortgage for your needs.