Buy to Let Mortgages

What are the implications of recent tax changes on Buy to Let mortgages?

The main thing that caused difficulty is not being able to offset the mortgage payments against the tax return at the end of the year.

There are definitely still some benefits to gain in that area, perhaps if you set up a limited company for your Buy to Lets. But it’s not something we’re qualified to advise on. We would always recommend speaking to a qualified tax advisor and accountant to make sure it’s the right thing for your income and portfolio.

Are there any restrictions on using a Buy to Let mortgage for properties in certain areas or for specific tenant types?

This might be a factor depending on whether or not you choose to do a standard tenancy agreement. Airbnb has been talked about a lot, and now that will only be available in certain areas like a seaside town or somewhere near tourist attractions – these locations may have slightly more appeal to lenders.

There are also HMOs – a House of Multiple Occupancy – where several people live in the property independently, which can give a slightly higher rental return. Similarly, that comes with specific requirements you’ll need to tick off in certain areas.

So there are different schemes and options available, but these will also come with certain metrics that need to be met and boxes that need to be ticked.

Are there any government schemes or support available specifically for Buy to Let investors?

Not specifically. There are routes whereby investors rent directly to their local council. That can give you a guaranteed income and help communities of people that need those properties. That’s definitely a great option to help both renters and landlords.

How important is property management for Buy to Let mortgages?

It’s great to have property management in place. Keeping the property up to a good standard will help keep your tenants happy so they will want to stay in the property longer. It’s also going to mean you can charge a more competitive rate on the rent.

If you let the property become run down and you never help your tenants when things need doing, you’re going to have more turnover and higher costs to get new people in. Taking good care of the property and making sure it’s in a nice condition is always going to help you get the right rent.

What are the consequences of defaulting on a Buy to Let mortgage? What are the potential risks involved in investing in Buy to Let properties?

The main risk people are concerned about is if a tenant decided to stop paying or causes damage to the property. It actually doesn’t happen as much as you think, but it’s still something to consider.

Make sure you have some backup – which comes back to the question around interest only, as a good option to build up a savings pot for these worst case scenarios. But if it did get to a point where your tenants stop paying you, you struggle to cover the mortgage yourself and it leads to a default, that can be quite damaging.

Once it hits your credit file, it’s certainly going to cause issues with getting a new Buy to Let mortgage for at least the next year or two. There are lenders who would consider it, but again, they’re going to charge you a higher rate for that. So make sure you’ve got that savings pot to cover these eventualities – that way you can avoid having a default and ending up with a higher rate on your mortgage.

What’s the process of adding additional properties to an existing Buy to Let portfolio?

This can certainly be done. The main cost to consider is the additional stamp duty on each one. That can be quite expensive when you’re looking to buy a few properties in a small period of time.

Once you get above three or four properties, a lot of lenders will start to consider you as a professional landlord, or a ‘portfolio landlord’. There may be some different checks in place, to look at your total borrowing across the portfolio and the rental return across the board – not just on the property we’re applying for.

If you are going to get multiple Buy to Let properties, it’s important to keep a really accurate record of the properties you have, their values, mortgage rates, lenders and the rent.

We can send across a sample spreadsheet to help you track that. It really makes life easier when we are then looking to potentially buy another one and expand that portfolio.

What steps should a first time Buy to Let investor take before applying for a mortgage?

You should look carefully into all the associated costs. It’s important to speak to a tax advisor to work out the implications around what to declare and the expenses you can use.

With the change we touched on earlier, if it’s in your personal name, you can’t offset the mortgage against your tax return. That could potentially cause some issues if the profit is not as good as you think.

Speak to a broker to run through how cost-effective it’s going to be, if the property will pass affordability, and how much you’re going to see from that property at the end of the year.

If it’s not going to be a great amount, potentially we need to go back to the drawing board and find a better property. So make sure you’re buying the right place and not just any property that pops up.

What else do we need to know about Buy to Let mortgages?

The key thing is having a broker who can run through everything we’ve discussed, making sure that the property will be affordable from the lender’s perspective, getting the right interest rate, and discussing whether it’s more sensible to choose interest only or repayment.

It’s about having that conversation – to understand why you’re buying the property and what you want to get out of it, so we pick the right lender and deal for you based on that scenario.

YOUR PROPERTY 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.