Can I purchase a Buy To Let Property?
Since the announcement of the stamp duty relief up to £500,000 we have seen a large increase in property purchases, and especially Buy to Let properties. So we wish to share some of the main questions we get asked along with some general guidance.
Q Can first time buyers also qualify for a Buy to Let mortgage?
A Yes you can. You will find that the majority of BTL lenders do require that you own and reside in your own residential property, however a small handful, around half a dozen lenders can consider lending to a first time buyer and first time landlord.
Q How much can I borrow?
A This will vary lender to lender however the majority of Buy to Let lenders who can offer mortgages to first time buyers will usually apply residential affordability and therefore will not tend to lend more than 5 times your combined annual income as the lender may have concerns that you would move into the property on completion. The lenders will also factor in any rental payments that you make as well as any debt and fixed costs such as
childcare, however they will be able to use your personal income and the gross rental income of from the property to offset these costs.
Q How much deposit will I need?
A You will need a 25% deposit for a Buy to Let purchase. Some will lender with as little as a 20% deposit, this is not currently available for first time buyers and the rates are around 1% higher.
Q Can I borrow more on a Buy to Let than a residential mortgage?
A Potentially yes. For example Barclays can offer Buy to Let mortgages to first time buyers and if you were purchasing a property for £300,000 and borrowing £225,000 (75%) as joint applicants with gross annual combined income of £50,000 pa, with 1 child, £5,000 of credit card debts and £450 pm towards loans then Barclays can lend you £195,000, whereas if this was being purchased as a Buy to Let property and the estimated monthly rental income was £1,200 pm and you paid £1,000 pm in rent then you could borrow the full £225,000 (75%).
Q Can I have an interest only mortgage, or repayment?
A Both options would be available to you and the lender will offer you the same interest rate and product regardless of whether the mortgage is interest only, or repayment.
Q Can I live in the property?
A No, you will not be able to reside in a property that has a Buy to Let mortgage on it and if this was your intention then we would need to remortgage the property to a residential mortgage.
Q Do I need to pay tax on the rental income?
A Yes you will. From April 2016 taxation for rental properties changed and you will need to declare the gross annual rental income to HMRC each year for tax purposes. We do suggest that you seek advice from a professional tax adviser to fully understand your tax liability.
Q Under what circumstance would this be suitable/beneficial for me?
A We tend to find that people who reside in tied accommodation such as teachers, religious leaders, or the armed forces usually benefit from this type of mortgage as usually they would have free, or low accommodation costs provided by their employers and do have savings that they could put towards a purchase, but are reluctant to do so whilst knowing they wouldn’t be able to reside in the property due to work commitments. We also find that people who tend to live in large and expensive cities such as London may not be able to afford to purchase a property where they live, so may look at purchasing a property in an area known to them which is in a more affordable area of the country.
Q Can I benefit from stamp duty relief being a first time buyer?
A Yes, being a first time buyer you would benefit from paying standard residential stamp duty rates being your first purchase. Currently you will pay nothing on a purchase of up to £500,000 until 31st March 2021.
Q Do I need to earn a minimum amount?
A Most lenders will require that you earn a minimum of £25,000 pa to ensure if there’s any rental voids that you would have a means to make the mortgage commitment.
Q Can I apply with someone else who isn’t a first time buyer?
A This would be a possibility for someone looking to invest in a property with a family member or friend and as long as 1 of the applicants meets the lenders criteria of owning a property then you can apply with the lender. This would also be the case for the minimum income as only 1 applicant on the application will need to meet this criteria.
Q Can I apply for a mortgage if I’m self-employed?
A Yes, however the lenders are looking in greater detail at self-employed applicants and will require sight of your latest 3 months bank statements to see that your business is still trading and no track to meet previous year’s profit
If you have any further questions, then please get in touch with us, or comment on the post and someone from the IMA team will respond to you as quickly as possible.
Your property may be repossessed if you do not keep up repayments on your mortgage.