Buy To Let Mortgages Essex
Finding the Right Buy To Let Mortgage in Essex
Who can get a BTL Mortgage?
It’s important to note that you’re not allowed to live in a buy to let property, and most lenders will require that you are already a homeowner. There are, however, specialist mortgage lenders who will help non-homeowners to purchase a BTL property, if this applies to you, you should speak to your broker for further advice.
As well as being a homeowner (in most cases), you will also ordinarily require a salary of at least £25,000 and to have paid off the mortgage by the time you reach the age of seventy. A strong credit score is also important.
How do BTL Mortgages Work?
Buy to let mortgages are usually sold as interest-only products, which means you have a lump sum to pay at the end of the mortgage term, but the monthly repayments are often lower. They usually have higher fees and mortgage interest rates than a standard residential mortgage.
Most lenders expect a deposit of at least 25% for a BTL mortgage application. They will base your loan on the rental yield (income) achievable from your chosen property. You would be looking for a rental yield of 125% of the monthly repayments to satisfy the lender. Therefore, prior research into average rent charges in the Essex area, for the style of property you intend to purchase, is strongly advised.
It’s important to note that BTL mortgages are not regulated by the Financial Conduct Authority (FCA), unless the property is purchased with the goal of renting solely to family members.
How much can you borrow on a BTL Mortgage?
As this is based almost entirely on the potential rental yield, this will depend upon the value of the property you’re looking at and average rents for that type of property in Essex.
Most lenders will also want to carry out a stress test, to ensure that you could afford the mortgage payments, should the rental property be vacant.
Planning for when there is no rent coming in
Whilst the rental market in Essex is strong, particularly in the wake of coronavirus, with a surge in people looking to move towards the coast, It’s important not to assume your BTL property will always be occupied.
From renovation and repairs through to potentially difficult tenants there are a number of issues that could affect your monthly rental income. A high-level rental protection policy is recommended for peace of mind, some even cover your income during periods of property vacancy.
Don't rely on selling a property to repay the mortgage
Most BTL landlords sell their rental property at the end of the mortgage term to cover the remaining lump sum payment. it’s important to be aware, however, that this will not always be feasible.
A crash in the property market could substantially lower house prices, not leaving you enough profit to pay off your mortgage. There’s also the potential it won’t sell within the required timescale. It’s therefore important to consider how you might pay off the final balance on your mortgage. Perhaps open a savings account or set up investments for this purpose.
Buy to Let and Tax implications and Advantages
Whilst you can earn a stable income from BTL properties, there are a number of tax implications to be aware of.
- 3% stamp duty surcharge
- Income tax is payable on your rental income and this income will affect your tax band
- When you sell the property you are liable for capital gains tax of 18%-28%
- You pay income tax on any profits made from the property sale
You are entitled to tax relief on some of the costs associated with being a landlord, so these can be written off against income tax. These include:
- property repairs
- council tax and utilities (where you pay these yourself)
- letting agency and property management fees
How can an Essex Based Mortgage Broker Help me find a BTL mortgage?
Finding the right buy to let mortgage can be confusing and time consuming. An Essex based mortgage broker might able to help you find those lenders most likely to accept your application, but their local knowledge is also invaluable.
Having familiarity with local property types and how much rent you could expect to achieve will be helpful, particularly to landlords new to the area. They also have a whole market view of mortgage availability and therefore can guide you towards the best deal, whether it be from a local or national lender.