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.

For reviews please see:-

http://www.vouchedfor.co.uk/financial-advisor-ifa/weston-super-mare/1185-matthew-duncan
https://plus.google.com/117059122631483744111/about?hl=en#117059122631483744111/about?hl=en
http://www.qype.co.uk/place/1656446-Matthew-Duncan-Independent-Financial-Adviser-Weston-super-Mare
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Riots;- what society have we created?

The riots have brought about a lot of debate in regards to social morality and what we as a society have created in regards to our youth. one of the areas debated tonight was removing the benefits of people that are caught rioting.

This brings to the forefront something we already know " the current benefits system does not work" it currently rewards having a baby for benefits and only working a token amount. When it was first designed I'm sure the aim was to support the needy not the lazy. Whilst not everybody on benefits is lazy it is easy to slip into the culture where you limit the amount of work you take on to maximise your income.

so why doesn't the benefit system work? Giving people money does not always help. To often in my last job would I see people on low incomes and dependant on benefits using the money in the wrong way. Each house had a 42" plasma Tv, The full sky package and decorated with gadget and luxuries. The problem being that these people through their enhanced income had taken credit cards and loans to fund a short term lifestyle. Once the debts had accrued they return to the poverty the benefits system wanted to save them from with most of their money leaving through interest payments or debt management companies on the door step. As evidenced giving people money without them having financial discipline or financial knowhow is pointless.

so what alternatives could be put forward? The aim of the benefits system is to support People who at that point in their life cannot support themselves so let's just do that. Rather than giving them money to pay bills they should just have a supported lifestyle. All essential bills such as gas, rent, council tax and water should be paid for, with a Small allowance for food which increases in line with the food price index per person. If they want more for luxuries then they have to work for it. As you earn more the benefits percentage reduce for bills. By having control of the money central government can put the bills out to tender. Imagine the bulk saving deal you could get from a gas company etc. This offers better value for tax pagers money.

By encouraging people to work it will eventually break the cycle of benefit dependancy and encourage people to want to better themselves again. Obviously there are pitfalls in any system and I would be interested in peoples opinion of this idea.