When applying for residential mortgages, changes to your income and financial commitments will heavily impact the loan sum offered by lenders.
This is because your personal finances are the only measure of affordability in residential mortgage applications.
Whereas, for buy-to-lets, your income and financial commitments are far less significant.
As you will be purchasing a property in the hope of generating rental income, the lender does not have to rely on your occupational income to meet the monthly mortgage payments.
In our industry a common saying is: “Let your tenants pay for your mortgage”.
For this reason, lenders use the anticipated monthly rental income as the predominant factor when calculating maximum loan sums for buy-to-let applications.
There are many buy-to-let lenders that list ‘no minimum income’ as a lending criterion.
However, for most lenders, you must earn a minimum of £25,000 gross per annum if employed and £25,000 net profit per annum if self-employed.
After you make a buy-to-let enquiry with Boon Brokers, our advisers will calculate your maximum borrowing with the most suitable lender.
Even though you may acquire a large loan sum calculation with ease, there are strict buy-to-let lending criteria that increase the barriers to finalising a purchase.
For example, unlike residential applications, borrowers currently require a deposit of at least 20% of the property’s purchase price before lenders will consider an application.
Whereas, with residential applications, a 5% deposit is the minimum.
Furthermore, the costs of becoming a landlord are ever-growing in the United Kingdom. Arrangement, valuation and legal fees should all be expected when making a buy-to-let purchase.
However, the most heart-wrenching cost for aspiring landlords to bare is Stamp Duty Land Tax (SDLT). SDLT is correlated with the purchase price of your property.
For buy-to-let and second home purchases, higher tax bands apply.
Different tax bands apply to properties in each price range. See the table below for full details:
Brackets
Standard rate
Buy-to-let/second home rate (April 2016)
Up to £125,000
0%
3%
£125,001 – £250,000
2%
5%
£250,001 – £925,000
5%
8%
£925,001 – £1.5m
10%
13%
£1.5m+
12%
15%
Source: HMRC
Despite the drawbacks of purchasing a buy-to-let in the short-term, the long-term prospect of equity growth and passive rental income is still enticing new landlords to enter the market.
For a free consultation with one of our advisers, click the ‘Contact Us’ button and submit an enquiry form.
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