What are the features of a Buy to Let mortgage? 

Buy to Let mortgages are strictly for the purchase of property to let out and you will therefore not be able to live in the property, even during renovations. The interest rates are higher than for standard residential mortgages, but the impact of this can be minimised in the short term as most Buy to Let mortgages are interest-only, so monthly repayments will still be lower.

Buy to Let properties are not regulated by the Financial Conduct Authority unless the property is bought to be rented exclusively by close family. The criteria you’ll need to meet in order to obtain a Buy to Let mortgage is also more extensive than for other mortgage types, as per the below:

• You normally must already own a residential property
• Most lenders require you have a personal income of at least £25,000
• It is beneficial to have a strong credit score

What things should you consider when buying to let if you are Self-Employed?

Although Self-Employed applicants have to go further to prove their income than other applicants, it’s common for Buy to Let applicants to be Self-Employed due to the nature of property ownership, which usually provides Self-Employed income.

As Buy to Let properties are a form of investment, you might want to consider how you can maximise your returns. The type of property and client will influence the level of rental income achievable, so it’s important to consider this.

Inevitably all rental properties will experience periods of vacancy, even if this is just while the property is renovated or advertised. It’s important to consider whether your other forms of income will cover the mortgage payments in these periods and if not, it’s a good idea to invest in Landlord protection policies.

Buy to Let as an individual or through a Limited Company?

Due to tax changes in recent years, some landlords have found it beneficial to purchase Buy to Let property through a Limited Company rather than as an individual. Depending on your individual circumstances there can be benefits and downfalls to both options. It’s recommended that professional independent tax advice is sought when considering which option is best for you.

What is an SPV?

An SPV or Special Purpose Vehicle is a Limited Company specifically set up for the purpose of purchasing investment properties. Some lenders are willing to increase their Loan to Value borrowing to 85% if you apply via an SPV, however, this reduces the availability of lenders, as most high street lenders are not usually willing to offer mortgages via a Special Purpose Vehicle, which means that you will need a specialist lender.

How will your income be assessed if you are Self-Employed and purchasing Buy to Let properties?

Although borrowing for Buy to Let properties is based on the potential rental income of the property, rather than your personal income, the application will be assessed in the same way that other Self-Employed mortgage applications are handled. This varies, based on the type of Self-Employed activity you carry out, however, an average of your net profit from the most recent two years is usually used as income. To support this you’ll need to provide:

• Three years of accounts – signed off by a qualified accountant
• Tax Calculations (SA302’s) and Tax Year Overviews for the same duration
• Business bank statements

What is Top Slicing?

Some mortgage lenders allow Buy to Let mortgage applicants to use either dividends and salary or your share of net profits, to top up any shortfall in rental income, if it is below the required amount.  This is referred to as Top Slicing. You will be able to do this providing you have enough surplus income to meet your current commitments.

What are the Tax Benefits/Implications?

When you purchase a Buy to Let property you will be liable for:

• Additional Stamp Duty of 3% on all additional properties purchased
• Rental income is taxable income
• Capital gains tax liability on the profit of any sold properties

You can claim basic rate tax relief on property repairs, landlord insurance, letting agent fees and other property related costs.

How can Blue Pepper Mortgages help?

Here at Blue Pepper Mortgages, we specialise in helping both Self-Employed people and Landlords to find the right mortgage deal. We can maximise your investment by finding competitive Buy to Let mortgage rates to match your circumstances and helping you explore your application options.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.