Difference between a Buy-to-Let and residential mortgage?
1.
Your property is underwritten
Unlike a standard residential mortgage, a Buy-to-Let mortgage is primarily underwritten on the property itself and not the borrowers’ income. The maximum you can borrow is related to the amount of rental income you’d expect to receive – so the property’s location, size and its amenities will all be looked at before a final loan amount is offered.
That being said, most mortgage providers will only lend to individuals who earn at least £25,000 a year and usually have an upper age limit.
2.
Higher deposit and fees
The minimum deposit for a buy-to-let mortgage tends to be a little higher than average – with 25% of the property’s value being quite normal. As well as this, mortgage providers usually charge slightly higher fees for a Buy-to-Let mortgage – however, this will vary from lender to lender.
3.
Usually interest only
Most Buy-to-Let mortgages are interest only – which means that you only pay the interest each month and the capital in full at the end of the term. Take a look at our mortgages page for more information about interest only mortgages.
New Buy-to-Let tax rules
Tax relief for Buy-to-Let mortgages are gradually being phased out. In the 2018/19 tax year, you’ll be able to deduct 50% of your costs from your rental income before tax is due. However, that will fall to 25% in 2019/20 then in 2020/21, you won’t be able to deduct any costs.
As well as this, any rental income exceeding your mortgage interest payments and certain allowable expenses are subject to Income Tax.
If you later sell your Buy-to-Let for a profit, it will be subject to Capital Gains Tax if in excess of the annual threshold.
Setting up a business to buy property
Landlords structured as a limited company are exempt from these new tax rules and instead will continue to pay corporation tax on their profits. Bear in mind that your property will still be subject to stamp duty.
Setting this up is easy when you have the right help. Your first step would be to set up special purpose vehicle in order to buy the property. You can do this yourself online but remember to select the correct SIC (Standard Industry Classification) code which relates to letting property. Alternatively, you can arrange for an accountant to do this for you.
Is buying property through a limited company for me?
Depending on your situation, this may be a more cost-effective option. However, bear in mind that this is not for everyone and it could lead to further implications down the line.
For more advice, tailored to your own situation, speak to one of our mortgage advisors.
Talk to one of our mortgage advisors
What is a Let-to-Buy mortgage?
If you want to keep your main home but let it out in order to purchase your new home, you can switch from a residential mortgage on to a Let-to-Buy mortgage. With a Let-to-Buy mortgage, you’ll often raise money from your residential property to help buy your new home. You’ll then arrange a residential mortgage on a property you’re moving to and a Let-to-Buy mortgage on your previous home, so you can rent it out.
This is ideal if you’re not quite ready to say goodbye to your old home – for instance, if you’re moving in with a new partner and want to still have the security of your previous property, or you just want to keep it as an investment.
As you can imagine, a Let-to-Buy mortgage can sometimes be tricky to arrange but with our help, it needn’t be such a headache. Speak to us about Let-to-Buy mortgages today and we’ll have you set up in no time.
Talk to one of our mortgage advisors
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