The buy-to-let (BTL) mortgage market in the UK is expanding quickly, raising concerns for financial stability due to its growing significance. It represents such a significant share of outstanding mortgage debt. Read the Best info about Btl mortgage.
BTL mortgages are available to individuals and limited companies alike. They typically provide interest-only repayment options, but some lenders also offer repayment solutions.
Remortgaging involves hiring a mortgage broker and solicitor, conducting a property valuation, loan affordability checks, property searches, and legal completion.
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Buying a property as a buy-to-let property
BTL mortgages offer an effective way of investing in property, yet can still carry risks that need to be mitigated in order to make a profit. One way is to shop around and compare offers from multiple lenders until you find one with suitable terms for you, and another way is to keep up with regulations as they change.
When applying for a buy-to-let (BTL) mortgage, your lender will consider your rental income to see if it can cover the costs associated with mortgage payments and operating expenses. They typically calculate affordability in much the same manner as they would when considering residential loans; typically, you’ll need at least a 25% deposit upfront.
Lenders will base your maximum loan amount on an estimate of rental income from your property. They want to ensure that monthly rental income covers not only mortgage repayments but all costs of running the property – insurance and maintenance included. Most BTL mortgages are interest-only, so your monthly payments will likely be lower than those with a repayment mortgage.
Make sure that you remember that a buy-to-let mortgage differs from traditional residential mortgages in that stamp duty is charged on it, so seek legal advice or consult a conveyancer about how best to purchase one.
Lenders’ requirements
When purchasing property for investment purposes, mortgage lenders require you to meet specific lending criteria. These may include an affordability test in which your rental income must cover mortgage repayments, landlord insurance premiums, and operating costs incurred on the investment property. Your specialist mortgage adviser can help you find a lender best suited to your circumstances.
In addition to conducting an affordability test, lenders must also assess other factors, including your employment status, assets, and credit history. Some lenders have minimum and maximum property values they lend on, while some impose age restrictions – for instance; some will only accept applications from people aged 75 years or over. Finally, lending requirements vary depending on whether an applicant is a first-time landlord or an established investor.
Mortgage providers in the UK typically treat BTL rental income as its source. For instance, if you own more than three properties and qualify as a portfolio landlord, they will carefully consider your existing rental income before providing you with new funding. While this may present some challenges for landlords who do not work full-time employment but struggle to demonstrate earnings, an experienced BTL mortgage provider should understand this and work with them towards creating the perfect mortgage solution.
Tax perks
Property investors and author Rick Gannon has noted that landlords can also take advantage of other tax breaks. According to him, these breaks could potentially cut your tax bill by thousands. For instance, renting out your home allows you to deduct mortgage costs from rental income, which helps lower overall taxable profit and puts it into lower tax bands.
However, these tax breaks are being gradually phased out. Starting in 2020, landlords who receive buy-to-let mortgage tax relief will no longer qualify; instead, they’ll get a 20% tax credit towards mortgage interest payments, significantly decreasing the amount of tax due if they fall within higher or top-rate tax brackets.
Another way of minimizing tax liabilities when purchasing BTL properties is to form a limited company. This structure offers several advantages, such as deducting mortgage interest from profits and paying corporation tax at 18% instead of 20% (currently).
Though purchasing through a limited company may expand your mortgage options, specific lenders require higher interest coverage ratios when lending to limited companies and may refuse the purchase of BTL properties owned by companies. It’s also worth keeping in mind that upon sale, any profit gained through CGT must be reported and paid for accordingly.
Getting started
If you want to purchase a buy-to-let (BTL) property, several steps must be taken. First and foremost is finding a lender offering such mortgages; additionally, there may be fees and expenses involved when buying such an investment, such as reservation fees, solicitors’ costs, stamp duty, etc., that need to be considered when planning your budget for such purchases.
Once you’ve identified a lender, it is time to select the ideal BTL mortgage for your circumstances. For example, this might mean choosing between interest-only or repayment mortgages. Interest-only BTL mortgages tend to be preferred among landlords because they allow them to make monthly mortgage payments while still making a profit; however, these require larger deposits than residential mortgages.
Consider whether or not you prefer a fixed or variable interest rate – fixed rates offer more excellent stability, while variable ones fluctuate based on market conditions. Also, take into account your purchase plans; investing in multiple properties may give you access to better mortgage rates from lenders who specialize in this form of lending. Finally, when it comes to tenants for renting purposes – BTL lenders typically expect rental income that covers mortgage repayments and expenses with a small profit margin in mind.
Read also: Buy-To-Let Mortgages For Landlords.
