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Buy To Let
Buy to Let
As a landlord, there are often many unexpected costs to pay for to keep your property business afloat every month, particularly when it comes to repairs and maintenance. Making sure you can at least get a great deal on your buy-to-let mortgage can take the pressure off significantly.
We make it our mission to research and access the very best deals on buy-to-let mortgages from both high street and specialist lenders with a view to saving you money.
What is a Buy to Let Mortgage?
Buy to Let mortgages are intended for those who are looking to purchase property for rental. With house prices outperforming inflation the buy to let market can provide an excellent return on investment.
Why would you get a Buy to Let mortgage?
Advantages of Buy Let to Buy mortgages have the potential to be very lucrative. Landlords can benefit from added income from rent while also building equity in two properties instead of one. Once these properties are paid off, they will become valuable assets for inheritance or resale.
Buy-to-let mortgages are very similar to ordinary mortgages, the key differences are:
- Setup fees can be much higher and interest rates on buy-to-let are usually higher.
- Normally the minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value.
How much you can you borrow for buy-to-let mortgages?
The maximum you can borrow is linked to the amount of rental income you expect to receive, lenders typically need the rental income to be 25–30% higher than your mortgage payment, although every case is treated differently.
What are the new taxation laws for individuals and limited companies on Buy to Let property?
Buy-to-let mortgage interest tax relief explained under new rules that took force as of April 2020, landlords will no longer be able to deduct any of your mortgage expenses from rental income to reduce your tax bill, you’ll be now receiving a tax-credit, based on 20% of your mortgage interest payments.
The new system will potentially increase your tax bill in two ways, if you’re a higher or additional rate taxpayer, you won’t get all the tax back on your mortgage repayments, as the credit only refunds tax at the basic 20% rate, rather than the top rate of tax paid.
Less obviously, you could also be forced into a higher tax bracket because you’ll need to declare the income that was used to pay the mortgage on your tax return. This could push your total income into the higher (£50,000 in 2020-21, the same as in 2019-20) or additional-rate (£150,000) tax brackets, depending on your income from other sources, such as your salary or pension.
Mortgage interest tax relief in 2020, an example of a landlord that charges £950 per month rental income, with mortgage interest payments of £600 per month. They’ll pay tax on the full £11,400 rental income they earn.
- They’ll still pay £7,200 in mortgage interest.
- They’ll get a tax credit of £1,440 (£7,200 x 20%).
- A basic-rate taxpayer will pay £840 – no increase
- A higher-rate taxpayer will pay £3,120 – double the tax
This change in tax relief only affects private landlords, people who own their properties as individuals (or couples), rather than through a business.
In theory, by setting up a business that owns their rental properties, landlords will be able to continue to declare rental income after deducting the mortgage.
When transferring the property from private to limited company status, you then need to pay an extra round of stamp duty when you transfer ownership of the property to the business.
Finally, if you incorporate your taxes will become more complex. Instead of paying income tax on your rental income, you’ll need to file taxes for your business, and pay corporation tax on your profits. To receive the rental income, you’ll need to pay yourself a dividend. This will be taxed as income, but at a lower rate than if you’d received the income directly.
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