Buy to let mortgage rules have tightened up for new landlords as well as seasoned investors.
If you are an expat looking to buy or refinance in the UK, then you need to know how the new rules will impact your business.
Deposits – the more an investor ploughs into their investment, the lower the financial risk for the lender, so mortgage interest rates decrease.
Expect to put down at least 20% of the property value – and 40% if you want the very best interest rates.
Fees and other costs – lenders will charge an arrangement fee on completion and possibly a booking fee for a fixed rate deal. The costs vary between lenders, so make sure you ask when working out the buy to let purchase cost
Stamp duty – landlords pay enhanced stamp duty, which is the rate someone who buys a home to live in pays plus 3%. This online stamp duty calculator will work out how much you should pay
Interest only – many buy to let mortgages are borrowed as interest-only deals. Since April 2017, HM Revenue & Customs has started to phase in restricted mortgage interest relief for higher rate taxpayers.
By 2020, instead of offsetting all mortgage interest against tax, landlords will only be allowed a 20% allowance regardless of the rate they pay income tax
Income assessment – this depends on if you are an amateur or portfolio landlord.
An amateur landlord typically has one or two buy to lets or rents out a home they once lived in. lenders will consider affordability against total income rather than on rent generated by a letting property.
Portfolio landlords have four or more buy to let properties and will have the rent and costs of each property assessed, but the final decision will be based on the projected rental income of the property to be mortgaged.
Rent cover – this is a calculation based on the interest paid on the mortgage and the likely rent a tenant will pay. Typically, rent cover is 140% of the annual interest charge at the lender’s standard variable rate, but the cover rate can vary between lenders.
If the rent cover figure is below the cost of the mortgage, the lender will probably make a reduced offer, leaving the landlord to find a bigger deposit.