The Council of Mortgage Lenders reported that buy-to-let lending rose again this Summer, increasing both month-on-month and year-on-year.
We’ve seen the Midlands buy-to-let lending become increasingly popular in recent years as the sector goes through fast growth following several years of depressed activity. If you’re considering a buy-to-let mortgage, our experts recommend the below.
Buy-to-let mortgage application
When you apply for a buy-to-let mortgage you will need to supply the lender with both the details of your income and the amount the property will be rented out for.
The anticipated rental should rent has to be 25% plus more than the monthly mortgage repayment. This means, for example, that if your mortgage payment is £1000 per month then the property should be rented for at least £1250 per month (£1000 x 1.25). Our panel of mortgage advisors can source you the most competitive quote, free of charge.
ADVICE. Don’t ever try to obtain a standard residential mortgage for a property that you intend to rent out. This is considered mortgage fraud and may well involve the property being taken back and could land you with a custodial sentence. This will have implication on your borrowing eligibility in the future. Lenders share information.
Initial Lender Deposit
Most lenders require at least 25% deposit and fees tend to be on top but can be combined in the product and paid off over time. It is also normal that your monthly repayments only pay off the interest and not the capital, in which case at the end of the mortgage you will still owe the amount you borrowed (less any overpayments you might have made). In this case you will have to show other investments that will be able to pay of the mortgage balance at the end of the product.
The income you achieve from a buy-to-let property is taxable and you need to declare it on a self-assessment tax return annually. Income Tax is charged on a variable scale depending upon your income. The amount you pay can be reduced by taking off some “allowable expenses”, such as the cost of repairs, insurance and estate agents fees.
In order to pay less income tax on your investment, you can reduce your income by the amount of your monthly mortgage repayments. From 2017 the rules are changing so that landlords won’t be able to reduce their income from property by the full amount of interest they pay on buy-to-let mortgages. From 2020 only the basic rate of tax will be deductable. For more information about tax on buy-to-let incomes, visit https://www.gov.uk/renting-out-a-property/paying-tax
Property Hot Spots
Our top five buy to let hot spots in Birmingham
- Birmingham City Centre
- Kings Heath
- Great Barr
- Suton Coldfield
Bobby Singh, Co Founder of Love Your Postcode said:
“It’s a great time to buy for both yield and capital appreciation. The Midlands is proving very attractive to the rest of the country. Birmingham is benefiting from a strong economy, great transport links, massive regeneration investment that brings in tourists, students and foreign investors. There’s clearly an appetite for the market and plenty of options for people looking to secure the capital needed to invest in buy-to-let properties. However, with the latest Budget announcement and income tax changes coming into effect, potential landlords and investors need to be conscious of how the changes impact them and their ability to repay their mortgage, while maintaining a strong investment.”
For more information on buy-to-let and the latest budget implications please contact our group on 0800 862 0870.
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