Buying to Let?

Buying to Let?

Information provided by Prospect Mortgages

Buying to Let?

The information for this article has been sent to us from our friends at Prospect Mortgages who are based in Merstone. The aim was to provide our landlords with a little bit more of an ‘edge’ when it comes to re-financing or purchasing further properties.  If you like to improve your knowledge with a quick brief on the residential lettings mortgages that are available then read on!

REGULATED, NON-REGULATED AND CONSUMER MORTGAGES

Buy to Let mortgages can be placed into 3 categories, regulated, non-regulated and consumer.

Consumer Buy to Let – These types of mortgages came into being in 2016 and they are designed for people who let out property but did not plan to; “The accidental landlord”. They are regulated in the same way as residential mortgages, which means the borrower enjoys a greater level of protection than they would with a standard buy to let mortgage.

Non Regulated Buy to Let – They form the majority of buy to let mortgages that are in operation. They are mortgage loans taken out by the borrower for the purpose of buying a property where the intention is to rent the property.

Regulated Buy To Let – also known as “family buy to let”. This type of mortgage has a fairly narrow definition; a property that you will occupy either now or in the future, will be let to a family member, or where up to 40% is occupied by the owner with the remainder let.

Consent to Let – This is the property owner has decided to let their main residential home and their current mortgage lender has agreed to ‘consent to let’. This is where the lender has given this permission so the homeowner can rent the property without being in breach of their mortgage conditions. The lender will usual charge an administration fee in these situations.

 

Further Requirements

Deposit Required – Generally speaking, nearly all buy to let lenders will require the borrower to commit a 25% deposit towards the purchase. Therefore, the lender will lender 75%  of the property’s value which is referred to as the loan to value of LTV.

 Self-Financing – The Buy to Let property must be self-financing, which means the rental income must cover the monthly mortgage repayment and cover any void periods that could arise during the borrowers ownership of the property. The lender will apply their stress test formula when determining if a property is self-financing or not.

Mortgage Term& Max Age – Most lenders offer a mortgage term up 35-40 years and will require the borrower to be aged below 70 upon application. Many lenders do not have a maximum age that the borrower must not exceed when the mortgage term comes to an end. There are some lenders that have no age constraints on application or expiration of the mortgage term.

Income – Usually the borrower will need to have a basic income of £25,000, however, there are lenders out there who do not have a minimum income requirement.

Limited Company Buy to Let – This is where a Ltd Company has been set up by the proposed investor to operate a more tax efficient way of owning, managing and generating income from a rental property. The vast majority of Buy to Let mortgage lenders will require the limited company to be a SPV (Special Purpose Vehicle). An SPV is a Ltd Company that has been set up to hold property and nothing else. Lenders will require the SPV to have a specific SIC code relating to the purpose of the company and its economic activity. We would always recommend you speak to a suitably qualified accountant about Ltd Company Buy to Let ventures to make sure they suit your personal tax position.

 Why not contact Nicjk Rogers at Prospect Mortgages to find out more?  Telephone  01983  616666