If you can’t aﬀord to buy a property outright, have no fear. There is always the option of a buy to let mortgage which allows you to embark on your venture with added ﬁnancial support. However, with diﬀerent rules to loans on standard properties, it’s essential to master all things mortgages. Deposits, tax and interest are just some of the elements you will have to tackle to make your investment journey as smooth as possible.
Buy to Let Mortgages Explained
A buy to let mortgage is very similar to a regular, residential mortgage. Money is loaned by a provider to help cover the initial purchase cost of a property, and the loan is repaid every month by the property owner over a set time period. However, in the case of buy to let, this type of mortgage is for landlords who intend to rent out the property rather than living in it themselves.
Three Key Mortgage Points
1. How to get a Buy To Let Mortgage
3. Tax Relief on Buy to Let Mortgage
How to get a Buy to Let Mortgage
It is all well and good having a buy to let mortgage explained, but how do you go about getting one? Landlords have to meet set criteria to acquire a loan to help purchase buy to let property. First of all, you usually can’t obtain a mortgage on a property of less than 30 square metres. The amount loaned will depend on the rental returns expected from the property during the letting period, so it’s useful to get clued up on all of the information about predicted rents and income. You must be able to provide proof that your investment will gain suﬃcient rental income to cover mortgage costs like interest. It is also helpful to already be a homeowner with a high credit score who has experienced at least 12 months of regular mortgage payments.
Interest rates tend to be higher, with many buy to let mortgages being interest-only. This means that you don’t have to pay the interest every month, but you must pay in full when the mortgage term has concluded. An ideal approach for long term investments, its positive features include the preservation of cash ﬂow throughout the duration of the mortgage which allows investors to expand their portfolio further. However, your individual investment strategy will determine whether you take this interest only path or opt for a repayment plan. This would entail owing monthly repayments with interest payments on top. A plan like these suits those who want to keep their portfolio of properties to a minimum, and gives peace of mind that the mortgage will be paid oﬀ in full at the end of its term.
Tax Relief on Buy to Let Mortgages
Many alterations have been made to tax relief on buy to let mortgages and it’s important to stay in the know with the latest changes. A reduction in the tax relief you can receive will be rolled out nationally by 2020. A rate of 20% will be in action for any landlords in buy to let who will have to pay tax on a bigger portion, in fact the full amount of rental income received on a property. This makes a change from the previous tax relief laws that permitted landlords to pay tax solely on rental income before mortgage expenses and interest deductions (also known as NET rental income).