Struggling to find the best buy-to-let mortgage in Wigan? 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 Is A Corporate Buy To Let?
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 Wigan the last 2 decades and this has fuelled a growth in amateur landlords looking for quality mortgage advice, this is why mortgage brokers in Wigan 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.
Wigan 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.
Wigan Buy To Let Mortgages.
Some buy to let mortgage lenders in Wigan 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 Wigan 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 Wigan 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.
Buy To Let Deal of The Week
Rental property management - should you usea letting agent or do it yourself? Managing your own rental property can sound appealingto some people when they first start out because they’ll know they will save on the lettingagent fees.
But you should consider whats involved and be honest with yourself and thendecide whether property management is right for you.
I have 3 questions that you can ask yourselfto see if you have what it takes to be an effective property manager, coming up.
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.
Now it’s true, letting agents do not haveany special qualifications.
Anyone can act as a letting agent.
But what they do haveor should have, are these 3 key areas which you need to check and decide as to whetheryou can deliver them yourself.
Do You Have The Knowledge? Do you know all the steps you need to taketo comply with the law and protect your asset? For example, securing the tenants depositin a Deposit Protection Scheme, checking that prospective tenants are eligible under theRight To Rent scheme if your letting in England.
And you need to be aware of any certificatesand any licensing for your area depending on the type of property and number of occupantsthat you will have.
A good letting agent will know the answers to all these questions andmore, and they will have systems that keep them update with both national and local lettingsrules.
Do You Have The Resources? For example tenancy agreements, guarantorforms, background checks for prospective tenants and membership with professional organisationsthat you can turn to for advice or if things go wrong.
As soon as the tenant moves into a property,they become the legal occupiers of that property.
And you don't want to give tenant's that legalright until you know that all background checks, contracts, deposits, and the first monthsrent is in place.
And the last question is, Do You Have TheTime? to run a rental property legally and effectively.
Are you willing and do you havethe time to take and respond to phone calls from your tenants at all hours of the dayand night? And can you handle co-ordinating all the maintenance? I think lots of inexperienced landlords makethe mistake of not putting value on their time.
They think they are saving money bymanaging their properties themselves, but they’re not getting paid for the time thatthey’re acting as a property manager they are simply just saving 5 - 12% on their income.
I would like to point out that if you do usea letting agent, you as the landlord are still responsible for the safety of your tenants,but by employing a professional agent, you will reduce the risk of anything going wrong.
There is risk associated with any type of investment, and I like to reduce that riskwas much as I can.
As a landlord, your aim is to provide an excellentservice to your customers, otherwise your customers are not going to stay for long.
If you don't have the time, knowledge or resources to serve your tenant, you will not be providinga good service.
If you have been able to answer yes to my questions and you have a passionfor property management, then brilliant, and I wish you all the best, but if your juststarting out, I don’t want you to think that property management is easy and thatit’s a good way of cutting back on costs.
Now, everything I have mentioned in this videocan be learnt.
So why not take one step at a time if your just starting out on your propertyinvesting journey? I was a landlord for over 8 years whilst I was in the Army and I useda letting agent because I didn’t have the time to manage my properties.
But I pickedthings up during that time and got a feel for what was required to meet the standards.
Once I retired from the Army, I reviewed my situation and decided to continue using aletting agent but I dropped the maintenance services.
If any repairs are required, theagent will now contact me and I will decide whether I take it on or I give it back tothem.
Letting agents typically charge an administration fee for arranging any repairs or any maintenanceand issuing of any certificates so I decided to take that on and save on some of the costs.
Before I finish there is one piece of goodnews, and that is if you do use a letting agent, all their fees are tax deductible.
If you have any questions about property management,please leave a comment down below and if this is your first time visiting this channel definitelysubscribe so you won’t miss any of my future videos that will all be geared towards helpingyou, start or improve your property business.
Thank you so much for watching, please likeand share this video if you found it useful and I will see you soon.
and you don’t want to give tenants …….
argh! which you need to be aware of ….
argh! and … huh (exhale).