Are you about to purchase a Buy To Let in Cheshire, and do you need a Buy To Let mortgage? After helping numerous clients in this way over the years, from our experience, here is a list of things you should know before you go ahead.
Should I consult with a broker when considering a Buy To Let Mortgage in Cheshire? This is up to you. You can go it alone to find your way through the complex issues surrounding a Buy To Let mortgage; it depends on how much time you want to spend researching lenders rather than concentrating on the property. Read this article to better understand whether this is for you or not. It is also worth noting there are quite a few ‘broker only lenders that offer flexible criteria and great interest rates. Those would be hidden from you by going it alone.
Do I have to own my own house before I can get a Buy To Let Mortgage? The answer is that for most lenders, you must be a property owner. This would normally be your main residence, or it could be another Buy To Let. However, there is a small number of lenders that will accept first-time buyers for a Buy To Let Mortgage. The best way to find the appropriate lender is through a broker.
What type of property should I look for? Buy To Let properties come in all shapes and sizes, and will vary according to where they are located and what type of tenant you are looking for. From small apartments, through standard houses and up to multi-room HMOs (houses of multiple occupations), the list goes on. If you are new to Buy To Lets, you should avoid HMOs until you have landlord experience. Keep it simple with a standard house or flat and let it out to one person or family.
What income do I need to have to get a Buy To Let Mortgage in Cheshire?
Many Buy-to-Let lenders have a minimum income requirement of somewhere between £15,000 and £25,000, however, there are a growing number of specialist lenders that have no minimum income requirement. The minimum income is not used for ‘affordability’ as it would be for your main residential mortgage but is simply to give the lender some assurance that if the property had no tenant for a few months, that you could pay the mortgage. That is known as a ‘rental void’.
What deposit do I need for a Buy To Let Mortgage in Cheshire? Nearly all lenders require a minimum deposit of 25% for a Buy To Let Mortgage. There are one or two that will lend up to 80%, therefore requiring a 20% deposit. These loans will typically have a higher interest rate.
How does a lender work out how much I can borrow for a BuyTo Let Mortgage? The amount that you can borrow against a Buy To Let property is based on the monthly rental income of the property. It must cover the Interest payments by an interest rate set by the lender, allowing for tax deductions based on your tax status. This is called the Interest Coverage Ratio (ICR)
Because this ICR will vary a lot from lender to lender, you could be refused a loan by lender ‘A’ when lender ‘B’ would be happy to lend. This is why you should discuss your borrowing needs with a broker, such as Aspire Financial Services. Remember:
The ICR will vary from lender to lender
- The ICR is also affected by whether you are a normal or higher rate taxpayer, a limited company, or a portfolio landlord with four or more investment properties.
Is it better to get a Repayment or Interest-Only Buy Let Mortgage? Most Buy To Let Mortgages are taken out on an Interest-Only basis. Is this the best way to finance a Buy To Let Mortgage and how does this work? There are a few things to consider when answering this.
- The lender Interest Coverage Ratio (ICR) calculation assumes that the loan is Interest-Only. If you apply for a Repayment mortgage you would have to go through a full affordability check making the transaction complicated and lengthier.
- Based on historical interest rates, you expect that the mortgage payments on interest-only will be lower than the rental income. This provides you with the investment income from the property.
- An interest-only mortgage is more affordable during any rental-void periods where you might not have a tenant.
- Typically, the mortgage lender will allow overpayments of up to 10% a year, giving you the flexibility to reduce the outstanding capital when you can afford to.
- What is your long-term strategy with this property? Are you planning to keep it in perpetuity and pass it on to your family? Although an interest-only mortgage never pays itself off, the property may be expected to grow in value, therefore your equity is increasing over time.
Can I get a Buy To Let Mortgage in Cheshire if I am retired? In short, the answer is yes. There are several lenders that will accept pension income, including state pension as their minimum income requirement. All you need is a deposit.
What is the maximum age for a Buy To Let Mortgage? There are lenders that will provide you with a mortgage at age 80. At Aspire Financial Services we would always discuss the aims and desired outcomes with a client of this age. For example, is it your plan to pass this to your children? If so, what would happen when you die? How would this pass to your children if it has a mortgage on it? We can help you to plan in such circumstances.
Can I buy a property to do-up for a Buy To Let? To get a Buy To Let mortgage in Cheshire the property has to be lettable from day one. That means it must have a working kitchen and bathroom and meet the energy efficiency rating specified for Buy To Let properties. What if it requires renovation? If a house requires renovation before it can be let, you will not get a mortgage.
How do I buy a Buy To Let property in Cheshire that needs renovation? If your chosen property is not currently habitable or rentable you must make the purchase using either cash or a bridging loan (short term property finance). Once the building work is complete and the house is ready for occupation, it can then be mortgaged, so you can get some of the cashback or pay off the bridge. Bridging is different from a mortgage, and you should ask a broker to explain the way it works. The good news is that there are a few lenders that will allow you to bridge, then mortgage in one transaction.
What is a Bridge-to-Let loan? This is a special type of loan that starts as a bridge and later converts into a mortgage. The same lender will set up the bridging loan so you can purchase the property that needs to be refurbished or developed. Once the work is completed and the house is ready to be let, the lender will convert the bridge loan into a Buy To Let mortgage and pay off the bridge, switching the loan to a Buy To Let.
What is an Ltd Company Buy To Let Mortgage? Several lenders will allow borrowers to purchase their Buy To Let properties as a Limited Company. There is a specific type of Limited Company to use, called a Special Purpose Vehicle (SPV); although it sounds complicated it is a simple thing to set up and once registered it can be used from day one. There may be tax efficiencies if you purchase your Buy to Let properties in this way, although the cost of borrowing will typically be higher due to Ltd. Company mortgage products having higher interest rates.
Should I speak to a property tax specialist when considering an Ltd? Company Buy to Let Mortgage? In recent years the UK Government changed the way that Buy To Let income is taxed. This had a particular impact on higher-rate taxpayers and as a result, many people have started to buy their investment properties as limited companies. (SPVs). Taxation can be complicated at the best of times, and property taxation even more so. When starting out with your first Buy To Let you should speak with a property tax specialist. This might not be your regular accountant so always double-check the knowledge and experience of the adviser. Aspire Financial Services can put you in touch with specialist advisers throughout Cheshire.
Summary
We hope that you found this article to be useful. At Aspire Financial Services we specialise in Buy To Let Mortgages and should you have any questions or be looking for the best advice on your Buy To Let in Cheshire, do contact us for an informal discussion.