Struggling to find the best buy-to-let mortgage in York? speak to one of our buy to let mortgage advisers today
The term ‘buy to let‘ generally refers to either the practice of buying a property to be let for profit or to the type of mortgages used to purchase a property for such letting. Many countries, both in the western world and in the developing nations, have seen a surge in the growth of the buy to let property market in the last 2 decades and this has fuelled a growth in amateur landlords and the but to let mortgage providers who are keen to encourage and profit from them in turn. In addition, this growth has generated a lot of commerce in other related sectors such as buy to let insurance.
What Are The Property Growth Areas Of Manchester?
Many countries, both in the western world and in the developing nations, have seen a surge in the growth of the buy to let property market in York the last 2 decades and this has fuelled a growth in amateur landlords looking for quality mortgage advice, this is why mortgage brokers in York who specialise in Buy-to-let are so important and the but to let mortgage providers who are keen to encourage and profit from them in turn. In addition, this growth has generated a lot of commerce in other related sectors such as buy to let insurance.
York Buy to let mortgages have been available in the UK since the mid-nineties and they are specifically designed for investors to borrow money to purchase property in the private rental sector. The amount that a prospective but to let investor can borrow is generally determined by the rental valuation of the property. The annual income for a rented property has to cover a certain percentage of the mortgage repayments, the Association of Residential Letting Agents (ARLA) states that landlords should seek to be able to obtain gross rent returns equivalent to between 130 per cent and 150 per cent of the rental property’s mortgage repayments, this takes into account the surplus rent to cover costs of property maintenance and slack periods when the property may be vacant of tenants.
York Buy To Let Mortgages.
Some buy to let mortgage lenders in York will lend you a maximum sum based on a multiple of your salary (usually a multiple of three) plus a percentage of the forecast rental income on the property. So if your annual salary is said 30,000 Franks and the forecast rental income is 10,000 Franks they will lend you 95,000 Franks. Other mortgages, in addition to factoring in your salary, will include any existing loan commitments you have, and then apply what is known as the ‘deduction rule’. This rule relates to the annual mortgage payments worked out at a pre-set level of interest.
Buy to let mortgage interest rates are generally fairly close to residential mortgage rates but will generally be slightly higher and typically charge higher fees. This is due to the fact that buy to let loans are considered by the financial sector to represent a greater risk than residential owner-occupier mortgages, and they generally are.
The Situation in the UK About Buy To Lets
The buy to let market literally ‘exploded’ in the York around the beginning of the millennium with rising property prices and the increasing availability of buy to let funding fueling a surge in would-be investors trying to cash in on the trend of the market. One reason for their popularity is the tax advantages that are available to the UK buy to let investors. Rental income is treated just like a salary by the Inland Revenue, and is therefore often taxed at 22% or even 40%. However, landlords are allowed to deduct costs from the taxable portion of their rental income, and these costs can include the interest of the buy to let mortgage repayments as well as maintenance costs on the property. These tax incentives made the buy to let market very attractive for both professional investors and amateurs looking to make the most out of their savings.
Would-Be Buy-to-let Investors
The market peaked around 2007 and now the market is saturated in many areas across the country with too many properties available to tenants. While buy to let is generally not a good idea for people who do not possess some extra budget there are a lot of remortgage deals which will fund a deposit for a home. If you are worried about losing money during void periods many companies will provide insurance which can deliver as much as six months mortgage payments in the event of a property in York remaining unoccupied.
You may still be lucky, and find a hotspot but you need to do your homework and the figures correctly. Buy to let trends differ from town to town and literally from street to street. Good advice for potential investors is to visit the local letting agents who should be able to tell you who is renting what at the moment so you can define your target audience. It could be students, young professionals or families, for example. Look for areas that do have a shortage of properties and for indicators that people will move there, such as new business developments.
Buy to let mortgage deals are still rife and the rates are almost as competitive as with conventional deals. The mantra with your buy-to-let must be ‘don’t expect to get rich quickly’. You need to look long-term: an absolute minimum of five years – but probably nearer to ten years.
How will the restriction of relief on Buy to Let mortgage interest affect landlords? Starting from April this year, there will be an increasing restriction on the level of interest that can be deducted from your personal tax return By 2020/2021, there will be a 100% restriction on on the deduction of interest and that will be replaced by a flat rate deduction at 20% of the actual interest, or rather I should say finance costs because it includes the fees charged by the lender as well as just the interest.
Starting in April this year, there will be a 25% restriction, rising to 50% the following year, 75% the year after and 100% starting in 2020/2021 "So what will be the impact of this restriction?" The impact will be on the higher and additional rate taxpayers of 40 and 45%, who will be taxed on their rental income at, or rental income after allowable expenses at 40 or 45%, but will only get a tax deduction for their finance costs at the rate of 20%.
This could indeed mean that "in extremis", they would pay more tax than they are actually making in profit.
Now, it's actually worse than that, because there is a category of people who might believe that they are not going to be affected by this tax change but will affected.
Now, let me explain that a little bit more.
If an investor is close to the barrier at which they will increase from a basic rate tax payer to a higher rate taxpayer, they might belive that for instance they are making, that they've got £40,000 of other income therefore, after allowances they've got maybe £10,000 of margin before they will move in to the higher rate tax.
But, it is the turnover, in other words the rental income after the costs, that will determine whether you move in to the higher rate tax not your profit.
So if somebody with say, £20,000 worth of rental income and £12,000 of finance cost might believe that they're not affected by this but they will be.
It is the addition of the £20,000 to their £40,000 of other income that pushes them in to the higher rate tax band, so they will be effected by this and need to consider what they can do to mitigate their position, probably by getting advice from an accountant.
"So, should I be borrowing via a Limited company going forwards, if I'm a landlord?" For many landlords, that's now quite a sensible option, because of the stress tests, that started to be introduced from the 1st of January are more generous for Limited company borrowers than those borrowing in their personal names.
"Does it take longer to process a Limited company application?" In theory, yes, the reason behind that is that lenders generally will have to undertake a search on the company, and then also the directors and potential shareholders behind that.
So there's obviously a bit more top do than a standard personal application, so they will check out the right coding of the company and the individuals behind that.
So, yes, in theory, but not a massive amount of difference, maybe 24 hours.
"And that's if it's an SPV, but it's slightly longer if it's a trading limited company" Yeah, you'll generally find that they want to see some accounts, to back up the history of that trading company just purely because of the trading element of the company itself.
"OK" "Are Buy to Let mortgages more expensive for Limited companies than they are for personal borrowers?" On the face of it, yes, purely because some of the likes the mainstream lenders that lend to the personal capacity, such as the Birmingham Midshires, the Mortgage Works, those type of lenders don't actually offer anything in a Limited company at the moment.
"Right, and what about the ones that do offer to Limited companies?" The ones that do, would seem to be a little bit more expensive, however we are generally seeing a lot more lenders starting to off either the same or certainly reducing their margins from the ones that will offer both personal and limited company products, such as our own brands such as Keystone for example "Yes, that offers the same rates, doesn't it-" Correct "-to Limited companies and to borrowers" Yeah and we're seeing other lenders as well looking to reduce their rates or certainly try and bring down those margins between personal and Limited company.
So, in theory, yes, they are, but not as wider a gap as there used to be "Why can landlords borrow more through via Limited company than personally these days?" The PRA announcement changes with way that lenders have to stress rental income on the back of the tax changes that are coming in over the next couple of years.
Essentially, landlords are going to pay more tax, therefore lenders need to mindful of the lower income that landlords will have from the rental properties.
The way that Limited companies are taxed is different, and therefore these changes won't be impacting that and lenders are able to offer a more relaxed calcualtion when lending to Limited companies.
"Right, so I've heard that's a kind of standard rent to interest calculation for personal borrowers and that around 145% at a stress test of 5.
5 whereas Limited companies, they're actually still being given the traditional stress test, rent to interest calculation of 125% of rental income, times by a stress rate of 5.
5, or less if it's a 5 year rate, is that right?" It is, yeah, and what you'll find is that in the personal borrowing space, and also the limited company, there are some variations on those tests.
So for example if someone was taking a 5 year fixed rate, some lenders are opting to offer slightly more lenient calculations than on shorter term, 2 or 3 year products.
And likewise, there's the ability to sometimes take in to account the personal income, the personal tax situation.
So some lenders are taking a more bespoke approach, but as a rule, you are absolutely right, what you just said.
"So that's a reason to come to a broker who knows the market and can work out which lender provides the appropriate stress test for your situation?" Yeah, absolutely.
So the market just became a lot more complicated in the last few months, so specialist advice is a really good idea.
"What's the difference between an SPV and a trading limited company?" The trading limited company will have their day to day business through that company.
An SPV will just have property, so it will be set up purely just to hold the investment properties, whereas the trading company will have income from creditors, debtors, all coming through that one business and also hold the property "So does it matter if I go to a lender if I've got and SPV or a trading limited company? Will they treat them both the same?" No, they treat them differently, so some lenders will do just SPVs, others will do trading companies.
So it's down to us to decide where to go, but they will base it on an SPV, they will base underwriting on your personal circumstances.
So your income being over £25,000 will get you over the line.
Whereas trading company they'll look a 2 years of accounts , 2 or 3 years of accounts for that company.
So SPVs I take it are more popular with the lenders" Yes, they're a little bit cleaner and a little bit simpler.
So the trading company there's a bit more complexity to it.
But either way, the rates don't vary drastically, it's just some lenders will do trading companies, some will do SPVs, some will do both.
So it's just working out which is more favourable.
"How do I go about setting up and SPV?" That's quite easy.
You just need to go on to the companies house website, which obviously you can find through Google, and then key the information on that's requested and follow the step by step instructions.
It is easy, someone in the office went through a similar process for their own personal benefit, and the most difficult question was "what shall I call the company?" so thinking up a name.
"Brilliant, so it doesn't take very long?" No not long at all.
Just pay your £15.
There are some other websites out there that will offer to do it for you, but they will charge more than that and there isn't really a need.
"What is a SIC code?" It's a Standard Industrial Classification code that defines what a limited company will do.
So you may have a butcher with a different number to a property company for example.
"And the lenders are looking for a property SIC codes on companies?" Yes, ideally they prefer the company to purely deal in property, rather than trade in something else as well.
"But there are lenders out there that will look at either an SPV that's got a SIC code or a trading limited company, whatever that may be?" Yes, we have smaller numbers of lenders that will look at both trading and property companies as opposed to purely SPV companies.
"Can I borrow through a newly created SPV, because it has no accounts.
" Absolutely, so what happens is, when you borrow through a limited company, the lenders will ask that the directors and/or shareholders, depending on the lender, offer an unsupported personal guarantee.
So what that means is that while the limited company forms a wrapper around the deal, actually the buck stops with the person, with the people that have offered these personal guarantees.
So really, when lenders a re underwriting limited company transactions, their focus is very much on the individuals behind the company, rather than the company itself.
And because of that, they can lend to newly set up companies with no trading history what so ever.
"Can you explain exactly what is a personal guarantee?" Essentially what happens with the personal guarantee is the lender saying "if we enter this money and you don't pay us on time and we have to repossess and sell the property, and the proceeds of that sale don't raise enough to clear the amount that is owed to the lender, the person who is offering the personal guarantee is personally liable for the shortfall.
" It doesn't mean that they're taking a charge on the persons own home or other assets, it just means that fundamentally, that person is responsible for making sure the bank will get their money back.
"Can I simply transfer my personally owned rental property in to a limited company?" No.
You should sell your personally owned property in to a limited company and unfortunately that's then a taxable event, so you could end up with Capital Gains Tax in your personal name, as well as paying Stamp Duty and of course the 3% surcharge Stamp Duty on the limited company as well.
"As well as the standard costs of selling a property.
And can I sell the property for any nominal amount?" No, it much be done at market value.
"Oh, right the taxman is looking for an open market value sale" Yes, they want Stamp Duty on the full price.
"Of course they do" "Are there any downsides to operating via a limited company?" Well first of all there's an additional upside.
Starting in April this year, the rate of corporation tax is due to fall from 20% to 19% and by 2020/2021, it's due to fall to 17%.
So that's even lower than the basic rate of tax.
So anybody who wants to keep the money in the company no matter if they're a basic rate tax or a higher rate tax payer, will be better off with the properties in a limited company However, there is always a "but" to these things, particularly with tax.
If you're a higher rate tax payer, you'll presumably at some stage want to get the money out of the company.
And there are various ways that can be done, either by salary, or by dividend, it can be a very complex equation, but there will be additional costs in extracting the money from the limited company.
With the recent changes so that dividends are taxed at higher rates than they used to be, albeit with a £5,000 dividend tax allowance.
There could be quite a significant cost to a higher rate tax payer in extracting the money from a limited company.
Having said that, no matter how bad it is, at least you're not in the position of paying more tax than you are earning in net rental income after financial costs, which you could be as a private individual.
"So yet again, go take some professional advice sit down with your accountant and work out the best position.
" "Are more landlords using limited companies to purchase Buy to Let property? Yeah, increasingly we're seeing nearly all of our customers, probably around 60-65%, making new purchases in to limited companies and probably about the same number purchasing in to their limited companies properties that they own in their personal name at the moment.
"You mean transferring over, even though its a sale?" Technically a transfer from their personal in to Limited company, but it's seen as a buy and sell transaction.
"For more information on Buy to Let mortgages for limited companies, visit the website.
Or, call us today on 0345 345 6788.
Do You Need A Mentor To Buy An Investment Property As A Beginner? (Buy To Let)
You maybe in full-time employment and don’thave any free time to manage your investment properties, or maybe your like me and youdon’t feel like you have the knowledge or experience to manage your investment propertiesand the tenants.
Or maybe you would simply prefer to spend your time in doing other things.
In which case you will require the help of a letting agent, and in this video I willtalk through the different levels of service that letting agents provide and how I go aboutfinding the best one.
Hi, I’m Andy Walker from monoperty.
Com whereI blog online about my journey as a property investor and landlord, sharing what worksfor me and what doesn’t, to help you start or expand your property portfolio.
In recent years there’s been a number ofonline letting agents appear with some very attractive fees, however, I don’t have experiencewith these, my experience is based on the traditional type high street letting agency,which is what i’m going to be talking about today.
If I do make the move to an onlinecompany one day, I will be sure to provide feedback to you when that day comes.
Ok, First of all, let me tell you about thetypes of services letting agents provide, there are 3 different types and each attractit’s own level of fees: For a Tenant Find service the letting agentwill advertise your property online using popular portals like RightMove, Zoopla andOnTheMarket.
They will answer queries that they receive and conduct any viewings withprospective tenants.
They’ll also carryout tenant referencing and credit checks.
Fees will vary, but to give you an idea, Iwas recently quoted £195 + VAT to have a property let on a tenant find basis only Next is the Let Only and this package includesall the services provided in the Tenant Find plus the issuing of the tenancy agreement,taking the deposit from the tenants, and then registering that deposit with a deposit protectionscheme, setting up any direct debits and submitting meter readings to the utility companies.
They may also offer to provide extra servicesthat will incur additional charges like creating a inventory, providing an Energy PerformanceCertificate and a Gas Safety Certificate.
It can be cheaper for you to arrange thesecertificates as letting agents typically charge a percentage for spending time in making thearrangements, so it depends on how much time you have to get those certificates in place.
You can expect to pay anywhere between theequivalent of 2-4 weeks rent for this service.
So it could be that your fist months rentis spent in getting tenants into the property.
And the last one is the Full Management Servicewhich is the most expensive but it’s the one I use as it helps to keep my time free.
This includes all the services of the Let Only package plus regular inspections, dayto day management of the property and rent collection.
Now with this service it means if the tenantshave any questions or any issues, they will contact the letting agent instead of me.
Theletting agent fees will be a percentage of the rental income over the letting term andwill be dedicated from the rent that’s received.
The fees typically range from 6 to 15 percentdepending on the type of property.
I did manage to negotiate a fee of 5.
5% for one of my propertieslast year, but I take on any arrangements and supervision of any repairs that may needdoing which is very rare.
So with this service the letting agent findsthe tenants, vets the tenants, takes the deposit, issues a tenancy agreement, secures the depositin a protection scheme, collects the monthly rent, pays the rent into my bank account lesstheir fees and handles any phone calls from the tenants.
Now when it comes to finding a letting agent,the easiest method is probably word of mouth.
If your lucky enough to know someone in thearea who is using a letting agent that they would recommend because they are happy withtheir services, then that’s great, but I would also recommend doing your own research.
I approach at least 3, and the first thing I do is look online for other properties thatthey are marketing.
I look for good photo’s and good descriptions.
The properties withthe best marketing will attract the quickest viewings.
Getting a prospective tenant toenquire and getting them through the door of the property is what you want to achieve,because hopefully the property will sell itself.
And obviously, the least amount of time theproperty is on the rental market, the better.
I also like to visit their offices to havea look and get a feel as to how they operate.
Property is very much a people business andif I have two or three agents that appear to be good at marketing and are good at conductingthemselves, then I will typical choose the agent who I resinate with most.
To help you and your letting agent, make sureyour property is in a good state of repair and that it’s good to go because it willsave you and your letting agent time and most issues are easier to be fixed when the propertyis vacant anyway.
Having a letting agent can also help to makesure you are compliant as a landlord.
And the introduction of the Right To Rent Schemehere in the UK in February 2016, is a good example of that.
They should also check that the relevant safetycertificates are in place and my letting agents always contacts me and reminds me when thosecertificates are due for renewal.
That said, I also keep a log for myself so I know whenthey’re due, because ultimately landlords are responsible for the safety of their tenants,and if things go wrong, it will be the landlord that’s summoned to court and not the lettingagent.
Before I finish, there are two other pointsworth mentioning for UK landlords.
Since October 2014, all letting agents mustbelong to a redress scheme which provides a free service for resolving any disputesbetween the letting agents and their customers, whether that’s landlords or tenants.
I willlist the 3 government approved redress schemes in the description box below, but rememberto ask your letting agent which scheme they belong to.
And for transparency, since 27 May 2015, lettingagents must display all their fees and charges for both landlords and tenants, on their websiteand in a prominent place within their offices.
And you should always check the associatedfees before entering into negotiations with a letting agent.
This is my last video of the ‘Getting Started’series.
I hope you have found this video, and the seres useful.
If you have watchedall 8 of them, you now have a basic understanding and knowledge of how to start investing inproperty and become a landlord.
If you still feel that you have some unanswered questionsabout finding a letting agent, or starting out in property investing and being a landlord,then please leave a question in the comment box below or head over to monoperty.
This is just the start for this channel though, I already have over a hundred other videoideas and I will continue to release one a week which, of course, will all be gearedtowards helping you start or improve your property business.
So if this is your firsttime visiting this channel, please subscribe so you don’t miss any of them.
If you foundthis video useful, please give it a thumbs up, it will help me out a ton, and if youthink anyone else will share benefit from seeing this video, then please share.
Thankyou for watching this video to the end, keep up the good work and I will see you in thenext one.