Buy to Let Mortgages

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Buy to Let Mortgages

Paul Holland answers your questions on Buy to Let mortgages.

What is a Buy to Let mortgage and how do they work?

A Buy to Let mortgage is a mortgage taken on a property with the purpose of letting it out to make a profit, on an investment basis, rather than living in it.

What is the difference between a Buy to Let mortgage and a Standard Residential Mortgage?

Rather than living in the property that you’re buying, you’re buying it as an investment. There’s lots of different reasons you would do that, but generally it’s a business decision to make a monthly income or for capital appreciation in the longer term.

How is a personal Buy to Let different to a Limited Company Buy to Let?

Whether it’s personal or a company Buy to Let, it’s a similar process. There are some tax differences, and a property tax adviser would be able to advise you whether or not it would be more beneficial for you to buy on a personal basis or to set up a Special Purpose Vehicle, which is effectively a Limited Company for the purpose of buying investment properties.

Who can get a Buy to Let mortgage?

Most people can, although a lot of lenders won’t allow you to buy a Buy to Let if you don’t already own a residential home. Generally speaking, the rules are very similar to residential mortgages in terms of credit status.

One of the main differences is the fact that a Buy to Let mortgage application is determined by the rental income that the property would yield. So that’s what’s going to drive the maximum loan, rather than your personal income.

How much can you borrow on a Buy to Let mortgage and what sort of deposit do I need?

How much you can borrow will be determined by the rental income potential, but there will be a maximum Loan to Value of around 75%. There are options that allow you to buy a Buy to Let with as little as a 20% deposit but most require a 25% deposit.

What are the costs involved in purchasing a Buy to Let property?

The difference would be that you are going to need a larger deposit than you would versus buying a residential property. You would also potentially have to pay a stamp duty surcharge on the property. If you own more than one, the stamp duty surcharge will be due, this consists of property normal stamp duty, plus 3% of the property price.

The remainder of the costs are relatively simple, such as a solicitor, a mortgage broker fee, and all the normal fees that come along with property purchase.

Is it illegal to rent out a house without a Buy to Let mortgage?

If it had no mortgage at all, and you owned the property outright, then you could rent it out, that’s not illegal. If you have a residential mortgage and you let your property out, that’s a completely different question.

The first thing you need to do if you have anything else other than a Buy to Let mortgage, is discuss it with the lender. There will be different answers depending on your mortgage terms and mortgage lender, as well as what your intentions are. In some circumstances, your existing lender may provide a Permission to Let. It’s important to have a chat with the lender and see what their restrictions are on that particular mortgage deal.

Is it illegal to live in your own Buy to Let property?

Illegal is a strong word, but it is likely to be against the conditions of your mortgage offer. Again, this is something that should be discussed with your individual lender.

Interest-only versus repayment on a Buy to Let Mortgage?

Most people tend to opt for Interest-only versus repayment on a Buy to Let mortgage, as it allows them to make a larger profit. Some people do choose to have their Buy to Let mortgage on a repayment basis, so that at the end of the mortgage term, there is no balance to pay back to the lender. This means that rather than making an interim income, they would have the bigger capital lump sum of income at the end of the transaction.

How many Buy to Let properties can I own?

I don’t know if there is an ultimate cap, but some people own hundreds of Buy to Let properties, so the majority of the population don’t need to be worried about it.

If you own three or four Buy to Let properties, are you classed as a professional portfolio landlord?

A portfolio landlord, according to Lenders, has four or more mortgaged Buy to Let properties. Some lenders differ their rules slightly, but most will see you as a professional portfolio landlord at four.

As a portfolio landlord, things become slightly different in terms of how they underwrite additional mortgage applications. There are various stress tests that they run looking at the bigger picture of your property ownership. They will assess all of your assets versus all of your income, so at that point, things can become a little bit more time consuming when it comes to an additional property.

Your property may be repossessed if you do not keep up with your mortgage repayments.