The buy-to-let market has experienced significant tax changes, much like the contracting market. Both markets are subject to more changes in the years to come.
If you are a contractor and thinking about a buy-to-let mortgage, you really should seek specialist mortgage advice from a firm like Wilcox Day Wealth Management. A specialist mortgage adviser, like us, can help you identify the right mortgage for you and the right lender to approach.
Below are some common questions:
Q1) How much can I borrow?
A1) It is best to speak with a specialist so they can consider everything in the round from affordability, deposit required, potential top-slicing of income, or if any proof of income is needed. As a rough guide, think that your rental income will need to cover circa 125% to 145% of your mortgage payments.
Q2) I already have a buy to let, can I release equity from this profit to buy another one?
A2) In theory, yes, you can. A specialist adviser can work with your lender (or remortgage) to release equity at the same time as purchasing a new property. It is essential to look at the broader market and understand the fees potentially attached as well as the rates going forward.
Q3) I have been contracting for less than a year, can I get a buy to let?
A3) The mortgage will not be based solely on your income and may not need much evidence in terms of contracting history. Questions will arise if there is a need to top slice your contracting income because the rental yield does not sufficiently cover the mortgage. The key is to identify the right lenders to get the best rate, the right conditions, and the appropriate duration of the mortgage.
Q4) How do rates compare on a buy to let versus a residential mortgage?
A4) The norm is that the interest rates are marginally higher on a buy to let versus a residential mortgage. Typical factors will affect the rates: term, size, loan to value, credit history, and type of mortgage.
Q5) What is the situation with stamp duty?
A5) Stamp duty can be a high cost, and since April 2016, there is an additional 3% stamp duty on second properties. Stamp duty applies on a tiered rate; therefore, as the property value increases, so does the stamp duty percentage. Please plan this into financials. Any good adviser will help you understand the costs.
Q6) Can I write off any of the interest against the property?
A6) This has been an area of significant change. Previously, landlords were able to claim interest rate relief, but this flexibility has reduced. Due to the recent changes, speak with your adviser about the ways you can structure yourself, depending on what your long-term aspirations are regarding a single buy-to-let or owning a property portfolio. You will also want to seek advice on some aspects like tenants’ agreements.
The best way to start this process is to get in touch with a specialist adviser like us.
Your home may be repossessed if you do not keep up repayments on your mortgage.
This article was provided to us by Geoff Day at Wilcox Day Wealth Management Ltd. Please note that this does not imply an endorsement by us.
You can review further articles that may be relevant; please visit www.wilcoxday.co.uk/contractors
Wilcox Day Wealth Management Ltd is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/about-st-james-place/our-business/our-products-and-services. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.