How do buy-to-let mortgages work?
A buy-to-let mortgage is secured on a property you let to tenants.
A buy-to-let mortgage is secured on a property you let to tenants.
The lender looks at the expected rent against the mortgage payment as well as your own finances. As an individual landlord you get tax relief on the interest at 20%, and buying an additional home carries a higher rate of property tax.
The adviser for this subject: Mike Chan
Lenders compare the rent the property is expected to earn with the mortgage payment, calculated at a rate the lender sets for the test. Each lender uses its own figures, and some take your personal income into account as well.
The deposit, the property type and whether you already own let property also affect what a lender will offer.
Since 6 April 2020 an individual landlord cannot deduct mortgage interest or other finance costs from residential rental income.
You get a reduction in your tax bill at the basic rate of 20%, worked out on the lowest of your finance costs, your property profits and your adjusted total income.
Mortgage interest, interest on loans to buy furnishings, and fees for taking out or repaying a mortgage. Capital repayments get no relief.
Where the reduction is limited by your property profits, the excess finance costs carry forward to later years.
A company that lets property pays corporation tax and deducts its interest under the loan relationship rules, so this restriction does not apply to it. When do I pay capital gains tax on property?
An individual landlord cannot deduct mortgage interest from the rent. The relief is a tax reduction at the basic rate of 20%.
A buy-to-let mortgage taken out for business purposes is outside FCA mortgage regulation, and the FCA's guidance treats you as borrowing for business purposes if you already own let property. Some first-time landlords take out a consumer buy-to-let mortgage, which has its own separate set of rules.
You need your lender's consent to let, or a buy-to-let mortgage on the home you are leaving. Buying the new home while keeping the old one can bring the higher rates of property tax.
A company deducts interest under corporation tax rules, and taking money out of it is taxed again as salary or dividends. Lenders treat company borrowing differently too. Take tax advice on your own figures before you decide.
Yes, on a property that was never your home. Capital gains tax sets out the rates and the annual exempt amount.
Yes, on your rental profit at your own rate of income tax, with the 20% reduction for finance costs set against the bill.
Bring the expected rent, the price and any other property you own, and we can look at lenders' criteria for your purchase.
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