Buy to let Mortgages

Buy to Let Mortgages
At the height of the mortgage boom many people bought second properties with the aim of renting them out and making a good rental income as well as capital appreciation. When the credit crunch hit many people got their fingers burnt in this market as property values fell and they ended up with losses in equity and mortgage payments more than the rental income.

A few years on and property is still not offering capital appreciation to a worthwhile level for a general buy to let property, however, in line with less properties being sold rents have increase to meet property demand creating a different opportunity for investors.

Whilst house prices may increase in the future it seems with the impending Mortgage Market Review (MMR) being implemented and the country dipping in and out of recession that capital gains on property will still be minimal if at all.

Return on capital (ROC) is now the main focus of a landlord with the possibility of future capital gains if the property is kept longer enough.

Return on capital is how long it takes to get the money back that you put in buying the property, meaning you end up with a property financed by a lender, making you a potential profit with none of your original money invested in it. Currently the most common buy to let mortgages involve clients putting down a 25% deposit. There are a few variances on this with one lender considering applications with only 15% deposit.

ROC

A property is purchase for £100,000 including the costs of purchasing. A £30,000 deposit is put down. The mortgage costs £500 per month and the rent received is £750 per month. The profit is therefore £250 per month before tax or £3000 per annum. This equates to a 10% return on capital. (ROC). Ultimately if tax was not a consideration or any other costs then it would take 10 years to recover the initial capital invested.

What is the Buy to let mortgage?

There is an array of Buy to let mortgages in the market with various criteria’s. One of the most notable disparities is the level of fees charged by the lender to set up the mortgage. Often headline interest rates are accompanied by very high set up costs whilst seemingly worse rates may be better overall. A good independent mortgage broker will evaluate the overall cost and recommend the best deal overall not necessarily the lowest interest rate.

What Tax is there on Buy to lets?

In simple terms the tax you pay on Buy to let is denoted by the profit you make per year (Your rental income minus the interest element of mortgage payments and other expenses). This is then added to your earned income for the year.

For example if you made £5,000 from your property in the tax year and were a basic rate tax payer (20%) then you would pay 20% tax on £5,000 = £1000.

If there are two owners of the property then you would have been deemed to earn £2500 each and taxed accordingly.

Is a buy to let property subject to capital gains tax?.

Any gain you make on a property that is not your main residence is subject to capital gains tax. A gain is considered the increase in value of the property since when it was purchased.

A Buy to let mortgage and multiple property ownership can therefore be a complex area of finance and therefore it is worthwhile speaking to an expert. Invest Southwest Independent Financial advisers can therefore offer value when arranging either the buy to let mortgage or dealing with the financial planning in regards to your property portfolio.

Visit www.I-Financialadviser.com for more details or call 01934 310653.

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"Advice for life"

First time buyer Mortgage hints and tips

by Matthew Duncan Independent Financial Adviser

Estate Agents.

 

• Do get them to work for you. Tell them what property types you are interested in.
• Do not give them too much information about your finances they are acting for the seller.
• When you have found a property you would like to bid on, phone the estate agent and ask them to pass on your offer (it is that simple). This is not legally binding until exchange of contracts (solicitors). Remember do not bid too high initially or too quickly afterwards if your offer is rejected. Whilst £1000 extra may be cheap to borrow per month it still is a lot of money so you must try to get the best value.

The mortgage process

 

Once you have found a property you like then you need to arrange the finance. Your estate agent may ask you for a decision in principle but it is more common for them to phone

the Mortgage broker/Adviser and ask if there is any reason you would not be able to secure a mortgage.

If you have no adverse credit history, a good income, registered on the electoral role then there is no reason you will not get a mortgage. If you need a decision in principle then call your adviser and they will be able to do this for you.

The rates are changing all the time therefore there is no point in choosing a mortgage product month before you are ready to offer for a property. When you have made an offer or are ready to make an offer this will be the point you sit down with your adviser a go through the different products and options to ensure you get the most suitable mortgage.

Once you have agreed the right deal for you the adviser will apply to the lender and take proof of income and identification (and anything else the lender requires) at this point. The lender will do its relevant checks and once they are happy a mortgage offer will be issued. This is typically valid for up to 6 months depending on the lender. It Is now over to the solicitors
 

Solicitors

 

These are instructed after you have made an offer and it has been accepted. It may be prudent to wait for a mortgage offer but this typically slows down the process and if there is no reason that you cannot get a mortgage you may consider telling them to start the searches. Obviously, if you do not proceed and they have started work you may be liable for their costs.

A date for exchange will be set where you will be required to provide the deposit and then completion will be the point where you get your keys and you are a home owner.

Costs to consider:-

 

• Valuation
• Stamp Duty
• Solicitors

With the right professionals involved, buying your first property should be clear and easy.