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Buy To Let
A buy-to-let mortgage is designed for borrowers who want to let their property out to a third party, usually tenants. It is becoming increasingly common for people to invest in property as a long term opportunity to make profitable returns and as a way of securing finance for retirement.
There are many competitive mortgage deals around that are specifically aimed at the buy-to-let market. Mortgage lenders will often assess buy-to-let mortgages on the earning potential of the property (i.e. the rental income) as well as normal income.
When you take out a buy-to-let mortgage, you will be expected to meet certain criteria:
• You will be required to put down a deposit and this will be typically larger than for a standard residential mortgage - it will likely be 10-25% of the property's value.
• Your expected rental income will usually need to exceed your mortgage repayments by a certain percentage - for example, your lender may require a rental income of 130% of your monthly mortgage payments. However, some lenders are more flexible – Please ask us.
• Your lender will also want to establish whether the property you are buying is a good long-term investment
Please remember that it is the borrower’s ultimate responsibilty to ensure that the mortgage payments are made, whether thare is a tenant in the property or not.
For more information on Buy to Let’s please call now on 0800 6 888 222.
Tax implications on buy to let properties
Tax will be charged on income received from rental properties after allowable expenses are deducted. However, you are eligible for tax relief on the following:
• The interest on the mortgage
• Rental insurance
• Any maintenance of the property
• Letting agency fees
• 10 percent of the rental income each year to cover depreciation in the value of furnishings, including sofas and carpets (this does not include fittings such as kitchen units and bathroom suites)
• Professional advisory costs incurred after the purchase of the property.
For more information on tax implications of renting property, you can contact your local tax office for a copy of the Inland Revenue Property Income Manual (PIM), or click below for a direct link.
Inland Revenue PIM
Additional costs of owning a buy to let
Other than the monthly mortgage costs please remember that the following might apply:
• Letting agent's fee for finding and vetting tenants, as well as any additional costs for providing a full property management service
• Legal insurance to cover costs in the event of having to evict a tenant
• Building and contents insurance for items provided as part of the rental agreement
• Furnishing and decorating costs for furniture required as part of the rental agreement
• Gas/electrical appliance maintenance costs to ensure they comply with regulations such as health and safety
• Ongoing maintenance costs such as painting, decorating, plumbing etc
• Ground rent or service charges if the property is leasehold
These costs can arise unexpectedly and you must have provisions in place to cover them.
In addition, you need to consider how you will cover mortgage payments should the property lie vacant for a period time.
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