Finance Q&A's
Buy-To-Let Mortgages
Property can be an exciting and rewarding investment, but it’s important to be aware of the implications that a buy-to-let mortgage can bring before entering the market. Lakeside Financial Consultant, Ed Brook, highlights the extra costs to watch out for.
What is a buy-to-let mortgage, and how does it differ from a residential mortgage?
E: A buy-to-let mortgage is specifically for those buying a property for investment rather than residential purposes. This type of investment tends to appeal to people wanting to put their money into something tangible and for the long term.
As with a residential mortgage, how much a provider will lend for a buy-to-let mortgage will depend on the borrower’s individual circumstances.
What extra costs/fees/tax do you incur with a buy to let mortgage?
E: Most borrowers take out interest-only mortgages to keep costs down, but they will generally face additional costs in other areas. For example, as lenders deem landlords higher risk than owner-occupiers, buy-to-let mortgages are typically more expensive in terms of interest rates than regular mortgages and generally require larger deposits too. You’ll also pay an increased stamp duty rate on a second property, plus you’ll be taxed on the rental income of the property. Some buy-to-let investors, therefore, set themselves up as limited companies for taxation purposes.
Any other considerations people should be aware of when looking into buy-to-let mortgages?
E: The rental calculations have to be right to ensure you’ll be making enough money on the property to pay the mortgage but also to cover things like rental voids, insurance, repair and maintenance costs and letting agent fees.
You should also be mindful of movements in the property market, especially at the point you wish to buy/sell, as it could affect a property’s value. Finally, you should speak to an accountant about the income tax, corporation tax and capital gains tax situation that might apply to you.
How can a financial adviser assist in getting the best buy-to-let mortgage deal?
E: We know the ins and outs of buy-to-let lender criteria and so can look at your individual circumstances to match you to the most suitable provider. We can also help to make sure your rental calculations are stacking up correctly and can offer extra support if you are setting up as a limited company to ensure you are doing so in the right way.
Please feel free to contact us for further information: admin@lakesidefs.co.uk
