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.
How To Find The Best Buy To Let Mortgage For Your Investment Property | Real Estate Investing Tips
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.
"Right.
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.
Buy To Let Deal of The Week
How do you really start a buy to let propertyinvestment business in today's market? Let me give you the ten things I think you needto consider.
Hi there, my name's Tony Law from your Your First Four Houses.
My channel'sall about helping you get to investment property number four as quickly and as painlessly aspossible.
Let me give you these ten things, I feel, you need to have at the forefrontof your mind in order to be successful in this property investing world of ours.
Thevery first one is to, you need to understand your financial goals.
Let me give you a specificway you should do this.
You basically need to understand how much money you're spendingevery single month.
Download three months worth of bank statements,work out what you're actually spending every single month, and that is the target thatyou need to hit, essentially, to be financially free.
The sooner you hit that target, thesooner you can basically give up the day job, essentially, and focus far, far more of yourenergy on building your property portfolio.
When you know what that number actually is.
Now I run a paperless office, largely, but when you know what that number is I needyou to do something vert manual for me.
I need you to go and draw up one of these, it'seffectively the kind of thing that you'd see if you were trying to raise finance for aparticular project.
At the top of it, you're going to have thattarget, that number that you've just worked out.
Running up the side, you're going tohave integers at about, say, 500 pounds, little marks going up the side.
Whenever you do adeal that puts money in your pocket you need to colour that in.
It may sound primitivebut it's incredibly powerful.
I've recommended this to a lot of people that use it and theyfind it really, really helps them keep focused.
Moving on quickly to point number two, youneed to work out how much time you can give to this.
Really, if you're working full-time,that doesn't mean that you haven't got time to do this.
You've got your lunch times, you'vegot your evenings, and you've usually got your weekends.
How much time can you give to this? The moretime you can give, the better and faster results you're going to achieve.
Next number three,I need you to start building your education.
Now, there's a number of ways that you cando this.
You can look at podcasts, you can get books, webinars, you can employ a coach,mentor, you can look at some courses.
The sooner that you can build your knowledge,the sooner you're going to better achieve bigger and better deals.
One of the specificthings I'd like you to consider if maybe this is an area of weakness for you, is to maybeget some training on negotiation because this is a real key thing that will really helpyou when you're speaking to agents or when you're speaking specifically to seller.
Pleaselook into that.
Number four, the sooner that you can focuson picking your strategy, the sooner you're going to be successful.
Now, I like peopleto focus on maybe one or two core strategies.
Rather than having more of a shotgun approach,it's better to be more laser focused.
See if you can work out which one or two corestrategies would work really well for you and start focusing on those.
Number five,research the different areas and work out where you should be actually buying.
Now,I did a video recently on this that basically gives you a really detailed explanation onhow to work out supply and demand in any area within about 60 seconds.
You need to lookat other things.
In the area that you're actually looking at,what's the situation with regards to perhaps new employment? What about transport links?Are they being improved, specifically? What about population? Is there an increase ordecline that you've noticed? All of these things can really dictate the better areasto actually invest.
Point number six, go and see a mortgage broker.
You need to find outwhat kind of mortgages you can get.
Again, I did another video here on how to actuallyimprove your credit rating.
I would strongly suggest that you watch that.
That will giveyou some real key tips to improve your credit rating, which is going to mean you'll getbetter access to better mortgages at lower rates.
Number seven, you need to learn how to findgreat deals.
Now, I know that this is a massive topic and we can go into this in a lot moredetail.
Essentially, you do need to understand how to find better deals.
You need to learn,very specifically, what makes a good deal for you.
Honestly, this is a real key thing.
You may have no funds at all but if you can find and negotiate really good deals, honestly,you'll never have problem raising the funds.
I'll invest with you if you can find reallygood deals.
In essence, there's lots of people around you that will be delighted to put moneyinto the deals if you can find them.
Next, start building connexions.
When I say that,I'm talking about connexions with agents.
I'm talking about connexions with deal sources.
I'm talking about connexions with people who can help you fund your next deal.
The sooner you start building genuine, sincere,honest, full-on relationships, friendships with people, honestly, the sooner you're goingto actually be successful in this property world of ours.
Number nine is simply exitstrategy.
So many people I talk to have no clear exit strategy.
They don't really understandtheir exit strategy at all.
I always encourage people to consider two exit strategies.
Iwould love you to do the same.
Even before you buy that very first property, just consider,are you holding this for the long term? Is this a flip that you want to churn to getthe money out very, very quickly? If things don't work out, is there a second way outfor you? Number ten, this is the big one.
This is whereso many people stumble and that is, you have to take action.
Now I know that seems bleedinglyobvious but so many people, they build their knowledge, they learn, learn, learn, but theystop at the action taking point.
Frankly, I don't really understand this if I'm beingtruthful with you.
I think it's largely down to fear quite often.
Quite often, perhaps,having somebody behind you that's maybe got their hand in the small of your back and justpushing you forwards or just giving you a bit of a shove to actually take that actionmight be really beneficial for you.
Let me ask you a question.
How many properties haveyou actually been out to see this week or this month? If they answer is none, then you're not takingany action, I would respectfully suggest.
You need to take that action.
I really hopethat you found that helpful.
I just want people to be successful in this property world ofours and to get to that magical place where the income that's coming in surpasses themoney that's going out.
If this sort of stuff really helps you, I am absolutely over themoon.
My name is Tony Law from Your First Four Houses.
I really hope you found thisone helpful.
I look forward to seeing you in the next video.
Before I go, please ifyou can take a moment to subscribe to my YouTube channel, if you haven't already done so.
Thatwould be absolutely brilliant.
If Facebook's more of your kind of thing, please like myFacebook page.
Thanks ever so much.
I look forward to seeing you in the next video.
Thankyou.