Buy to Let Mortgages
Rental yield
This is the amount of income a property can
generate. It must cover the interest payments on a
buy to let mortgage by 120%-130% depending on the
lender. The surveyor instructed by the lender will
determine what rent the property is likely to yield.
See this
calculator to work out what you might be able to
borrow
Loan to Value
This is the percentage that the mortgage represents
against the value of the property. Simply divide the
mortgage by the property value to find the loan to
value.
Most Buy to Let lenders are looking for a minimum
deposit of 20%. However, if the rental yield is not
high enough then more deposit is required.
Income
Most buy to let lenders will require you to have
personal income (excluding the rent from the
property) of at least £15,000, some as high as
£20,000. This should enable you to cover any short
term Voids (periods when the property is empty and
not generating income)
Repayment Type
You can choose between repayment or interest only.
Interest only is likely to save you tax compared to
the repayment method. This is because the charge to
interest reduces after each mortgage payment; you
can offset interest charges against rental income
for tax purposes, so if the amount of interest you
pay reduces then there is less to offset and more
tax is payable.
The capital payments that you would have made under
a repayment mortgage should be set aside into a
savings plan like an ISA. This would be tax
efficient too and could be used to fund further buy
to let properties in the future. Eventually, you
should build up enough funds to repay the mortgage
and own the property outright.
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