25 February 2016
25 February 2016,

Numbers of people purchasing buy-to-let mortgages increased significantly last year – for the third consecutive year. Investing in property in the UK is becoming an ever more popular way to generate income – especially given the strength of the current rental market.

Stephen Smith, Legal & General’s Director of Mortgage Club and Housing, commented recently that: “Last year, buy-to-let lending reached a total of £27.4 billion, up 32% from the previous year.”

If you’re examining buy-to-let property for sale and want to find out more about getting a mortgage for your investment, this guide contains all the basics you need to know.

Shopping Around for the Right Mortgage

As with any form of mortgage, it’s important to compare what’s available on the market. In order to successfully purchase a house for rental purposes, you’ll need a special buy-to-let mortgage – however, this doesn’t necessarily mean you’ll have to buy from a specialist mortgage lender. Many high street banks and building societies also offer these types of mortgage.

Online comparison tools are often helpful when you’re researching what’s available – such as Money Supermarket’s buy-to-let comparison service.

What to Expect

 Here’s a few things to know about buy-to-let mortgages, before you start applying.

  1. A buy-to-let mortgage will have a higher interest rate.
  2. Be aware, arrangement fees and booking fees may also be higher – it’s important to factor these into your overall budget.
  3. The mortgage amount you’re eligible for depends on a number of factors, including predicted rental return. You’ll need to make sure you do your calculations first – and keep your expectations realistic.
  4. You cannot use a standard residential mortgage to buy a rental property. If you do so, this is viewed as fraud in the eyes of the law – and could result in criminal prosecution.


How to Apply

After identifying the right buy-to-let property for sale, and ascertaining realistically how much it would generate in rent, it’s time to get in touch with your chosen lender. In order to process your application, they will require the following information:

  1. Income details
  2. Proposed amount you’ll be renting the property out for

The anticipated rent should be 25% more than your monthly mortgage repayments, or more. You’ll also need a sizeable deposit, which is generally around 25%. Be aware that it’s normal for your monthly repayments to only pay off the interest (rather than interest and capital) – this is standard in the buy-to-let market.

Investing in Property – UK Income Tax

In addition to your mortgage costs, you’ll also need to factor in taxes. All income generated from rent is taxable, and as a result, it’s important to declare it when you fill in your annual self-assessment tax return.

How much you’ll be charged depends entirely on your overall income – this includes income generated from your employment as well as your properties. Income tax is charged in brackets of 20%, 40% or 45%. At present, you are legally able to reduce your overall income by the amount of your monthly mortgage payments. However, from 2017 onwards, this will no longer be the case – and from 2020, only the basic rate will be deductible.

Help from the Buy2Let Shop

If you’d like help finding a great buy-to-let property for sale, or want to know more about making a purchase, talk to The Buy2Let Shop today. We’re specialist property investment agents in London, and we’ll guide you through the purchasing process, ensuring that you maximise on returns. We also offer help with buying a house at auction, and we also regularly host a range of property seminars in London.

To find out more, simply visit our site today.

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