[Finance] Buy to Let Mortgages

[Renegade1]

As explained above, it's not worked out like that.

4 times your personal income is used for you home, because you also have to use your income to pay for everything else in life - council tax, gas/elec, water, food, car, clothes, etc etc. With a rental property, the rental income has to cover the mortgage and it doesn't need to do much more than that. So companies used to ask for rental income to cover 125% of the mortgage, allowing for interest rate rises. The last btl I bought cost 325k, and I got a 275k mortgage for it.

So you put down 50K,and the rent covered the mortagage payments.Sorry but I don't get why they lent you 275K? Is it connected to for example
to how much capital you have in other properties? Otherwise you raised it based on your employment earnings?

 

[Triggaaar]

So you put down 50K,and the rent covered the mortagage payments.Sorry but I don't get why they lent you 275K? Is it connected to for example to how much capital you have in other properties? Otherwise you raised it based on your employment earnings?

No, not linked to other properties, and not linked to my earnings. The rent was something like £1,200 a month, the mortgage was less than £1k (interest only). That's all they needed.

 

[Beach Seagull]

Thanks for clarifying. Much appreciated.

 

[Shropshire Seagull]

The latter is true - your salary would still receive the full personal income tax allowance, so your net pay wouldn't fall.

True in the first year, but net pay deductions are managed by your PAYE Tax Code. When you have an additional income [e.g. BTL] HMRC will ask you to do annual Self Assessments. After you've done this once, the following year HMRC will know there is untaxed income [profits from BTL] so will adjust your PAYE coding to make your tax payment smoother.

Let's try and keep it simple with an example: You have a £25k job with usual PAYE and for 2017/18 your tax free allowance if £1,150 so you get a tax code of 1150L. If you submit a SA which shows e.g. £3k for BTL profit [untaxed] they will demand the £600 PAYE shortfall and adjust your PAYE coding for 2018/19 to 850L. The affect of this will mean that you won't pay any more PAYE [in total] than you would have done anyway, just that they will deduct more from your pay packet each week / month so that you don't get a £600 SA shortfall to pay later. Helps smooth cash-flow and avoids finding the £600 in one lump.

The above is a rough example and there may well be other factors to consider in the full and proper calculation - just trying to illustrate how HMRC deduct PAYE in a BTL situation will impact take home pay [eventually].

 

[Renegade1]

No, not linked to other properties, and not linked to my earnings. The rent was something like £1,200 a month, the mortgage was less than £1k (interest only). That's all they needed.

Very interesting.

So basically so long as you have a deposit of at least 25% and the rent will cover the interest only mortgage you can pretty much borrow for as many properties as you want?

If you for example had 100K, would you use that for a deposit for one property or go for 2 or even 3?

Is there any relevance to the capital you have in your own home?does it help?

 

[Uncle Spielberg]

Very interesting.

So basically so long as you have a deposit of at least 25% and the rent will cover the interest only mortgage you can pretty much borrow for as many properties as you want?

If you for example had 100K, would you use that for a deposit for one property or go for 2 or even 3?

Is there any relevance to the capital you have in your own home?does it help?

No this is not correct

 

[Renegade1]

No this is not correct

How does it work then?

 

[DJ NOBO]

Thanks for this although the reply above from Dale Jasper contradicts this?

As I understand it and how it's worked for me.

Say you get paid 40k.

You would be taxed - 0% on personal allowance and 20% for the rest .

If you made a further 10k in profit from rental income (with allowable expenses factored in) , you would be taxed on the 5k above the 45k limit (for 20%) at 40%.

Not sure if this answer your question (and I'm a media tart not an accountant) but I'm sure you will agree it is fascinating stuff

 

[Uncle Spielberg]

How does it work then?

The lending is based on the rental income on the property

 

[Renegade1]

The lending is based on the rental income on the property

Hopefully Triggaaar will explain how he was able to borrow 275K.

If we took an average 2 bed flat at £900 per month then that's only a £43.200 mortgage if you times it by 4.
I assume this is what you meant and it's 4 x yearly rent paid?

 

[Uncle Spielberg]

Hopefully Triggaaar will explain how he was able to borrow 275K.

If we took an average 2 bed flat at £900 per month then that's only a £43.200 mortgage if you times it by 4.
I assume this is what you meant and it's 4 x yearly rent paid?

Ignore any buy to let mortgages arranged before 2017 everything has changed

 

[worthingseagull]

I'm late to the party but have a look here guys to give you a rough idea - play around with the numbers

http://www.themortgageworks.co.uk/products/calc/max-amount-to-borrow-calc

 

[Triggaaar]

Very interesting.

So basically so long as you have a deposit of at least 25% and the rent will cover the interest only mortgage you can pretty much borrow for as many properties as you want?

My deposit wasn't even 25%, and I could borrow on a lot, but that's pre credit crisis, things aren't so easy now.

If you for example had 100K, would you use that for a deposit for one property or go for 2 or even 3?

Yes, you could in the past.

Is there any relevance to the capital you have in your own home?does it help?

Not really, unless you use that for an equity loan etc, and use the capital to buy more. In the past you didn't even have to prove your income. I got a monster mortgage from Northern Rock without any checking. I paid it back though, so not my fault they went bust.

 

[Triggaaar]

Hopefully Triggaaar will explain how he was able to borrow 275K.

What again?

The rent was something like £1,200 a month, the mortgage was less than £1k (interest only). That's all they needed.

If we took an average 2 bed flat at £900 per month then that's only a £43.200 mortgage if you times it by 4.
I assume this is what you meant and it's 4 x yearly rent paid?

No, again:

As explained above, it's not worked out like that.

4 times your personal income is used for you home, because you also have to use your income to pay for everything else in life - council tax, gas/elec, water, food, car, clothes, etc etc. With a rental property, the rental income has to cover the mortgage and it doesn't need to do much more than that. So companies used to ask for rental income to cover 125% of the mortgage, allowing for interest rate rises. The last btl I bought cost 325k, and I got a 275k mortgage for it.

So with your example, an average 2 bed flat at £900 per month:
If the mortgage required the rent to cover 125% of the cost, then that rent would cover a mortgage cost of £720 a month. That's £8,640 a year. If your mortgage rate was 5% interest only*, that would allow a mortgage of £172,800.

* I'm not sure what affordability calculations the companies are using at the moment.

 

[Triggaaar]

Ignore any buy to let mortgages arranged before 2017 everything has changed

Cool - what are the new rules? From the point of view of getting the largest mortgage you can on a BTL, what's the best you can get?

Just found this, is it out of date or still applicable?
http://www.themortgageworks.co.uk/products/calc/max-amount-to-borrow-calc

I'm late to the party but have a look here guys to give you a rough idea - play around with the numbers

http://www.themortgageworks.co.uk/products/calc/max-amount-to-borrow-calc

Ok that's freaky.

 

[Renegade1]

Can you buy two properties with one BTL mortgage?So you have your deposit,your salary,you give the earnings from rent on TWO properties,you borrow the max then you buy two properties?

I ask this because if it is still correct the smaller the property the better the returns so two small 1 beds will earn more than 1 x large 2 bed?Taking
into account the 1 beds together cost the same as the 2 bed.

 

[Uncle Spielberg]

Can you buy two properties with one BTL mortgage?So you have your deposit,your salary,you give the earnings from rent on TWO properties,you borrow the max then you buy two properties?

I ask this because if it is still correct the smaller the property the better the returns so two small 1 beds will earn more than 1 x large 2 bed?Taking
into account the 1 beds together cost the same as the 2 bed.

No you would need 2 mortgages

 

[Uncle Spielberg]

Cool - what are the new rules? From the point of view of getting the largest mortgage you can on a BTL, what's the best you can get?

Just found this, is it out of date or still applicable?
http://www.themortgageworks.co.uk/products/calc/max-amount-to-borrow-calc


Ok that's freaky.

Generally

basic rate tax payers loan x 5.50% x 125%
higher rate tax payers loan x 5.50% x 145%

Lenders who lend based on overall personal income, rent and commitments, Barclays, Clydesdale Bank and the Furness Building Society, 25% deposit needed

 

[Triggaaar]

Can you buy two properties with one BTL mortgage?So you have your deposit,your salary,you give the earnings from rent on TWO properties,you borrow the max then you buy two properties?

No, two mortgages, and each mortgage will have a legal charge on the property they apply to, so you can't sell it without paying off the charge (the mortgage).

I ask this because if it is still correct the smaller the property the better the returns so two small 1 beds will earn more than 1 x large 2 bed?

Each property is different. Work out everything, how much the property costs to buy, how much the mtg will cost (setup and monthly), how much maintenance costs, how much it will rent for and how easily, how often the tenants will stay, what type of tenant you get etc etc.

It's generally more effort to look after two smaller properties, so you might want a slightly better return, but I doubt there's much in it.

So is this all for someone else, or are you wanting to do it or what?

 

[Renegade1]

No, two mortgages, and each mortgage will have a legal charge on the property they apply to, so you can't sell it without paying off the charge (the mortgage).

Each property is different. Work out everything, how much the property costs to buy, how much the mtg will cost (setup and monthly), how much maintenance costs, how much it will rent for and how easily, how often the tenants will stay, what type of tenant you get etc etc.

It's generally more effort to look after two smaller properties, so you might want a slightly better return, but I doubt there's much in it.

So is this all for someone else, or are you wanting to do it or what?

This is for me.I will be buying a property.Intended on 1 then considered 2 smaller ones.
Looking at Right Move you would get more for 2 smaller units however depends how much
extra hassle having two instead of one would be for the extra you would get.
Pretty sure I would go for 1 nice flat.

Will also look into an equity release loan should I want to buy another.
Basically that's just a re-mortgage?
I am with Nationwide who don't lend for BTL so would have to change.