Can I get a Buy to Let mortgage for a rental property?
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I have inherited £100,000 from my grandmother and would like to use it to buy a house to rent out. I will need to borrow about another £100,000. My husband and I have a joint mortgage on our home which we’ve been paying back for 15 years. Can I get a mortgage for the rental property?
Diane Fish of Smith & Pinching responds:
The mortgage you would require for this type of purchase would be a Buy to Let mortgage. Unlike a standard residential loan, Buy to Let mortgages are unregulated, therefore there is no protection via the Financial Services Compensation Scheme. This should not necessarily stop you from carrying out your plans, but it is an important point to consider.
Buy to Let lending is based primarily on overall ‘loan to value’ and normally you would need at least a 25pc deposit, which you have. Then the gross rental income (before any letting fees, etc.) will need to be sufficient to cover the loan required. Lenders in this lending arena will have their own ways of assessing this. Personal income from employment/self-employment will also be a factor as some lenders have minimum requirements. Age may play a part; some lenders have upper age limits, others do not. Some lenders require you to be a residential homeowner, others do not.
Buy to Let lending is repaid on an interest-only basis or a capital and interest (repayment) basis. Many landlords choose interest only with the repayment vehicle being the sale of the property in the future. While they own the property, they are benefiting from rental income and potentially the property increasing in value. However, this situation is reversed if a suitable tenant cannot be found and/or the property loses value and is worth less than the outstanding capital when the owner wants to sell.
It is worth mentioning that there is an additional Stamp Duty payment on Buy to Let/second homes, potential Capital Gains Tax liability on the eventual sale of the property and personal tax implications. Before buying this type of property I recommend you seek your accountant’s advice as well as consulting an independent mortgage adviser.
Your home may be repossessed if you do not keep up payments on your mortgage. We do not offer deals that you can only obtain by going direct to a lender. There will be a fee for the mortgage advice. The precise amount will depend upon your circumstances, and the type of lending taken. Smith & Pinching’s minimum advice fee is £950. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk