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Buy to let

BLOG articles: Portfolio Landlords - do you know if you are one?; Quick Guide: HMOs and MUBs

If you are thinking about buying or remortgaging a property to rent out then Maxwell Moore can help find a suitable mortgage for you. The criteria governing buy to let lending has become much stricter and more complex in recent years so why not benefit from the expert advice that Maxwell Moore offers. We can help you obtain a mortgage in your personal name, or if you wish, to finance your property via a limited company or SPV.

Generally, interest rates are higher for buy to let mortgages and you will usually only be able to borrow 75% of the property value as a mortgage. Some lenders will consider up to 80% of the value but the interest rates for these products are higher still.

There are numerous criteria that are considered by lenders when assessing a buy to let mortgage application. This can include whether you are a first time or established landlord, whether you own a residential property, whether you have a personal income (and of a minimum amount) as well as affordability in relation to the property you are buying and your taxation status. It really is worthwhile using a broker such as Maxwell Moore if you are considering buying or remortgage a buy to let property as we will be able to identify the right lenders for your circumstances.

Affordability

Buy to let mortgages are assessed differently to residential ones when it come to affordability. For a residential mortgage, the amount you can borrow is based on your personal income and expenditure; for a buy to let mortgage the amount you can borrow is based on the anticipated monthly rental income for the property once let, and the rate at which that income will be taxed. This is referred to as the income coverage ratio (ICR) and is calculated as the monthly rental income divided by the stressed monthly interest only mortgage payment multiplied by 100 to turn it into a percentage. We know, that sounds complicated! We won't lie, the criteria for buy to let mortgages are quite complicated now with no single rule for calculating the stressed monthly interest only mortgage payment and different minimum ICRs depending on the taxation that will apply. Even within the regulatory rules, lenders have different ICRs depending on their attitude to risk for buy to let lending.

Taxation

The taxation treatment of mortgage interest for buy to let properties held in personal names is currently changing. The amount of tax relief on mortgage interest available will be limited to 20%. This means that if you are a higher rate tax payer you will see your tax bill increase. Lenders will take your tax status into account when assessing any mortgage application and the minimum ICR will be higher if you are a higher rate tax payer; they do this to account for the higher levels of tax that you will have to pay. The taxation changes only apply to investment property owned in personal names. A company that owns investment property can still claim tax relief on the full mortgage interest costs. Many landlords are now setting up limited companies to own the property and lenders have adapted to provide mortgages specifically for newly formed and existing limited companies. We are not tax experts so unfortunately can't advise on whether ownership in your personal name or in a limited company is the right solution for you. Our guide below provides some further details and is our understanding of current rules, however we recommend you seek professional tax advice when deciding which route to take.

You can find out more about affordability and taxation in our BTL guide.

Portfolio Landlords

If you own four or more mortgaged buy to let properties then you are now classed as a portfolio landlord. This means that any mortgage applications will be subject to more stringent checks and the process will look at your entire portfolio and personal income. You may even have to submit a business case and cash flow statement. Maxwell Moore can help put together all the information you will need to apply for a mortgage if you are classed as a portfolio landlord. You can find out more in our blog article linked above.

We can also advise you on landlord's insurance for your investment.

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