Black Pearl Property & Finance
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Buy to Let Mortgages
Buying property to rent out privately is hugely popular in the UK. In 2006, 10% of all mortgages taken out were buy to let mortgages.

Buy to let mortgages can make sound investments, but do your homework before you begin by finding out what buy to let mortgage types are available to you and what types of investors to look for.

Why Buy to Let Mortgages are Popular
Buy to Let mortgages are very popular in the UK. Reasons for their growing popularity are:

* Property is a great longer-term investment, especially as stock markets are volatile. Property is a great longer-term investment, especially as stock markets are volatile.
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* Interest rates are low, so buy to let mortgages offer an attractive alternative investment. Interest rates are low, so buy to let mortgages offer an attractive alternative investment.
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* With the overall UK population rising, a high divorce rate plus growing student numbers, there is plenty of demand for rental accommodation. With the overall UK population rising, a high divorce rate plus growing student numbers, there is plenty of demand for rental accommodation.
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* Mortgage lenders are offering competitive, specifically-designed, accessible buy to let mortgages to make life easy for the landlord. Mortgage lenders are offering competitive, specifically-designed, accessible buy to let mortgages to make life easy for the landlord.
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Black Pearl - Buy to Let Mortgages Buy to Let Mortgage Types
In the past, the only type of buy to let mortgages available were variable rate deals. However, nowadays there is a whole range of buy to let mortgages, from fixed rates and discounts to trackers and flexible rate mortgages.

Buy to let mortgage lenders will usually insist that you have a deposit of 15 per cent, so the size of your deposit will help determine the amount you can borrow. Lenders will usually insist that the rent the property will command covers 125 per cent of your mortgage payments (although some will accept 100%).

This protects both you and the lender against rental voids - periods when the property is untenanted.

Unlike residential borrowers, most buy to let investors opt for interest-only mortgages, simply paying off the interest owed to the lender, but not the outstanding capital. This is repaid on the sale of the property.

Buy to Let Investors
There are two types of buy to let investor in the UK: the professional landlord and the so-called amateur landlord. A 'professional' investor may have a portfolio of anything from three to hundreds of properties, while the 'amateur' is more likely to have just one or two.

Whichever type of buy to let investor you are, the basic principles remain the same: you must buy the right property at the outset, and get the right finance for it. And you must be aware of the same things: your legal responsibilities as a landlord, and how your investment affects your tax position.

There are plenty of lenders in the market to cater for your needs. At present, buy to let mortgages are only available through intermediaries (mortgage brokers), although some high street lenders have talked about offering them directly to borrowers.

Buy to Let Mortgages: Taxes and Legal Requirements
Tax issues can be complex with buy to let mortgages, so speak to your accountant to determine your position on buy to let taxes. In the meantime, bear the following basics in mind.

Income tax
You are liable to pay income tax on the rental income you receive. Tax will be charged at your highest marginal rate of income tax - either 22 % or 40%.

There are allowances you can offset against income tax. Take your rental income and deduct the following:

* Interest payments on buy to let mortgages (but not capital repayments). Interest payments on buy to let mortgages (but not capital repayments).
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* Mortgage arrangement costs. Mortgage arrangement costs.
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* Maintenance costs (such as painting and decorating). Maintenance costs (such as painting and decorating).
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* 10 per cent a year depreciation of furniture value. 10 per cent a year depreciation of furniture value.
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* Cleaning costs. Cleaning costs.
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* Ground rent, service charges and buildings insurance, where applicable. Ground rent, service charges and buildings insurance, where applicable.
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* Advertising the property. Advertising the property.
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* Letting agent's fees. Letting agent's fees.
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* Accountant's fees. Accountant's fees.
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* Insurance policies on white goods, gas boilers and plumbing cover. Insurance policies on white goods, gas boilers and plumbing cover.
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Capital Gains Tax (CGT)
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* When you come to sell the property, you will be liable for CGT on the gain. When you come to sell the property, you will be liable for CGT on the gain.
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* You have a personal capital gains tax allowance. If your property is held in joint names with a spouse or a partner, you can add your allowances together. You have a personal capital gains tax allowance. If your property is held in joint names with a spouse or a partner, you can add your allowances together.
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* Any net taxable gain in the year is added to your total income from other sources in the year to determine the tax band applicable. Any net taxable gain in the year is added to your total income from other sources in the year to determine the tax band applicable.
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* If the property was formerly your main residence (your home), you are exempt from capital gains tax (CGT) if you sell within three years of it becoming a rental property. If the property was formerly your main residence (your home), you are exempt from capital gains tax (CGT) if you sell within three years of it becoming a rental property.
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* If the property was never your main residence, you are liable for full CGT for the first three years. After that the proportion of tax charged is tapered for the next seven years. There is a reduction of 5% after three years, increasing by 5% each year to a maximum of 40% of the gain, after 10 years. This equates to effective tax rates for higher rate taxpayers of 24%, and basic rate taxpayers of 13.8%. If the property was never your main residence, you are liable for full CGT for the first three years. After that the proportion of tax charged is tapered for the next seven years. There is a reduction of 5% after three years, increasing by 5% each year to a maximum of 40% of the gain, after 10 years. This equates to effective tax rates for higher rate taxpayers of 24%, and basic rate taxpayers of 13.8%.
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Buy to Let Mortgage Legal Requirements
As a landlord, you have certain responsibilities other than buy to let taxes. Some of the following are buy to let legal requirements, others come highly recommended.
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* Inform your mortgage lender that you are intending to rent out the property. Inform your mortgage lender that you are intending to rent out the property.
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* Inform your insurance company that you are letting the property - you may need to get a different buildings and/or contents policy. Inform your insurance company that you are letting the property - you may need to get a different buildings and/or contents policy.
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* Health and safety: you must have a gas check and maintenance check carried out by a Corgi-registered technician once a year. A tenant can demand to see a current certificate. Health and safety: you must have a gas check and maintenance check carried out by a Corgi-registered technician once a year. A tenant can demand to see a current certificate.
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* Health and safety: you must have a gas check and maintenance check carried out by a Corgi-registered technician once a year. A tenant can demand to see a current certificate. You must meet fire and furnishings regulations. For example, all sofas must be manufactured to fire-retardant standards (see the DTI website dti.gov.uk for further details of buy to let legal requirements).
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* Make sure electrical fittings are in good order. Take care to ensure that all wiring and plug sockets are checked properly by a qualified electrician. Make sure electrical fittings are in good order. Take care to ensure that all wiring and plug sockets are checked properly by a qualified electrician.
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* You must take out references - a bank reference to make sure the tenant can pay the rent and a personal/employer reference to check that they are of good character and won't damage the property. You must take out references - a bank reference to make sure the tenant can pay the rent and a personal/employer reference to check that they are of good character and won't damage the property.
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For more information or to discuss your particular requirement, click here to contact us.

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