Buy To Let

The Buy To Let market has been much in the news in the last year with many people having been lured in on the prospect of making almost certain profits on the ever increasing property values. Banks that specialised in offering loans in this area have also suffered recently. But as with most things, you should never have too many eggs in the one basket.

With Property Prices now falling rapidly, people are again starting to look at the longer term picture and deciding that while there may be little prospect of short term capital gains on the property, there is value to be had from the rental income sector, especially as mortgage interest payments can be offset against the rental income for tax purposes..

Location. As with any property, this is the key and you need to be looking at the long term potential and development of the area. The Buy To Let market is definitely not for the short term any more.

How much to borrow. Although the market place has shrunk as a result of the credit crunch, there are still lenders out there, and our Mortgage Advisers can help you get the right deal.

Typically you would need a deposit of at least 15%, but the higher the deposit the wider the choice of lender you will have and ultimately the better rate you are likely to get. The lender will usually base the loan on the amount of rent that the property is likely to command and it may often be that this would need to cover 125% of the cost of the monthly interest to the lender.

Income Tax.  As mentioned you can offset the cost of the interest payments against the rental income for income tax purposes, but the loan must have been taken out with the express purpose of buying the property to let. You cannot simply use an existing loan.

Capital Gains Tax. The rules on Capital Gains Tax were changed in April 2008 and both indexation and taper relief have now disappeared, and been replaced by a single flat rate of 18%. For higher rate tax payers the rate is 28%. You still have your personal annual allowance and this is declared in the Budget each year. Our advisers can help you get to grip with all the issues on taxation.

Energy Performance Certificate (EPC). Don’t forget if you are renting a property out you will also now need one of these, together with meeting your other landlord’s obligations.

Some types of mortgages may carry charges such as set up fees, booking fees, or an early redemption charge. These will be made clear at the outset. We can be paid by commission, a fee or a combination of both. A typical fee would be no more than £750.
Your home or property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
The Financial Services Authority does not regulate some aspects of buy to let mortgages and commercial mortgages.

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