Where to go to get a Buy-To-Let (BTL) Mortgage
Most big banks and specialist lenders offer BTL mortgages and some of these only deal directly with brokers, so it is worthwhile to take advice from your local Mortgage Shop broker.
Plan for times when there is no rent coming in
Don’t assume your property will always have tenants. There will almost certainly be voids when the property is unoccupied or the rent isn’t paid. You will need a financial “cushion” to meet your mortgage payments. You might need to have savings for major repair bills, for example the boiler might break down or there might be a blocked drain. As the landlord, you will be liable for these costs.
Don’t rely on selling the property to repay the mortgage
If the BTL mortgage is arranged on an interest-only basis, don’t assume that you will be able to sell the property to repay the mortgage. If house prices fall, you might not be able to sell for as much as you hoped for. Therefore you will have to make up the difference in the mortgage.
BTL tax implications
Capital Gains Tax (CGT) – if you are a basic rate taxpayer, CGT on a BTL second property is currently charged at 18% and if you are a higher or additional rate taxpayer, it is currently charged at 28%. This means if you sell your BTL property for profit, you will usually pay CGT if you make a gain that is higher than the annual threshold of £12,000 (20/21 tax year).
Income Tax – the income you receive as a rent is liable for income tax. This should be declared on your self-assessment tax return for the tax year it was earned in. This might be taxed at 20%, 40% or 45% depending on your income tax band.
Mortgage Interest Tax Relief – the rules around mortgage interest tax relief are changing. This will mean relief for finance costs on residential properties will be restricted to the basic rate of income tax.
We do not advise on any matters relating to taxation. We would urge you to seek independent advice from a relevant taxation specialist.