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What You Need to Know
There are many reasons why you would choose to invest your money in a Buy To Let (BTL) property. For one, the monthly rental you receive from your tenants is like having a passive income that works hard for you while you’re earning money as a contractor.
Because you’re already used to running your own business as a director of your own limited company or as a self employed sole trader, owning one or more BLT properties can be a lucrative add on business.
Having the backup of regular rental payments dropping into your bank account every month can be a great supplement to your income, especially when you’re in between contracts. Likewise, saving your rental income into a tax-free ISA, for example, is a good way to boost your savings or pension while your BTL property increases in value year on year.
If you’re just starting out and keen to make your first Buy To Let property purchase, then speaking to an experienced independent contractor mortgage adviser that operates across the whole of the buy to let mortgage market, will save you a lot of time and effort.
And if you’re a seasoned landlord ready to add to your portfolio of properties and make your next mortgage application – then we can introduce you to our network of bespoke BTL mortgage lenders who are keen to do business with contractors.
How will my income be assessed?
As a self-employed or a limited company director, when it comes to buying your BTL property, your income isn’t as important as the rental you expect to receive, because that’s the vehicle for paying back the mortgage interest and capital.
However you will still need to provide proof of all your income streams. The right specialist contractor lender will be used to dealing with buy to let mortgage applications from other contractors and will know how your work is structured and how you get paid.
How Much Can I Borrow?
The amount you can borrow on a buy to let property depends on the rental income you expect to receive. Most lenders will expect your rental income to be at least 25% more than your mortgage costs.
They will also want to know about your ability to repay the loan and the property you’re buying before they approve your mortgage application.
They may want to know:
- The type of property you’re planning to buy – a flat or a house?
- Where you’re buying the property – location is very important
- What’s your budget – use a mortgage calculator or ask us to help you work it out
- The type of tenants you hope to attract – young couples, professionals, students?
- How much rent you expect to receive – do some rental market research beforehand
- How much deposit you’re able to put down – the higher the better
- How will you pay the capital back at the end of the term? – savings or sell?
While it may seem that you’re having to provide a lot of information, as an independent mortgage adviser that is authorised and regulated by the financial authority in England, we will always treat your personal details with utmost care.
What’s the Minimum Deposit you’ll need to put down?
The minimum deposit you’ll need is 25% of the sale price of your property. However you’ll secure a much better mortgage deal with a higher deposit. The more you can afford to put down the more likely you will attract the best interest rates.
As a specialist contractor mortgage broker, we have access to lenders who will consider contractor BTL customers and offer the most favourable rates. When assessing how much you can afford, a lender will also want to know how many BTL properties you already own – so they can assess the risk.
While thinking about how much deposit to put down, it’s important to factor in the costs of buying a property, such as stamp duty, legal fees, and insurances, as well as repair or decorating costs you’ll need to pay for before your tenants move in.
Planning Your Rental Income
It’s important to work out how much your annual rental income you’ll need. This will be dependent on the type of property and its location. For example, the number of bedrooms will determine who it will appeal to. A two bed house might suit a young couple with no children or a single tenant, but might not be right for a couple with children.
A property situated in a good area will always hold its rental value. If you’re expecting a rental income of £1,000 a month, that will be a total of £12,000 a year. Out of that you’ll need to know what your annual expenses will be.
It’s important to have a cushion of money available for unexpected repairs, ongoing maintenance and landlord regulatory costs, like annual boiler services and gas safety inspections, as well as insurance premiums. If you use a lettings agent they can charge around 15% of your rental income to manage your property for you. You’ll also need to pay your accountant to create your lettings accounts, and include the 20% tax you will pay on your income minus allowable expenses.
Bear in mind that BTL mortgages tend to be interest only. While this will keep your monthly mortgage payments low, when the mortgage term ends, the lender will expect you to pay back all of the capital in full. So you’re advised to have a savings plan running alongside your BTL mortgage so you have the capital available once the mortgage term comes to an end.
How We Can Help
A specialist Contractor Mortgage broker or adviser that works across the whole of the BTL marketplace can really help speed up your mortgage application by narrowing down the choice of lenders based on your own unique set of financial circumstances.
We specialise in helping Contractors and other Self Employed clients secure great BTL mortgages. Check out our podcasts and blogs on contractor mortgages for more information – then pick up the phone and give us a call.
Remember to always choose a mortgage adviser that is authorised and regulated by the financial authority in England. Remember your home may be repossessed if you do not keep up payments on your mortgage.