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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