Buy To Let Mortgaging A Good Option in the UK?

Premises:

Mortgages for buy-to-let properties can be a great source of income for real estate investors who want to amass a rental property portfolio. Selecting the ideal mortgage and lender is crucial to ensuring a sustainable return. In this document, the leading home mortgage broker in Bexleyheath, The Mortgage Consultancy, jots down the essentials.

Buy-to-let mortgages are not the same as residential mortgages. The purchasers cannot dwell in this house; they can only generate income by renting out the property. While it is meant to be the golden ticket to a passive income for landlords, given the nature of the industry and the current tax regimes, it is established that buy-to-let isn't quite that simple.

How Buy-to-Let Mortgages Work in the UK

Most buy-to-let mortgages in the UK are interest-only, with the landlord paying the monthly interest using rental income.

With tax reforms in recent years, the UK government has tightened its grip over the buy-to-let sector. Apart from the 3% stamp duty surcharge on second homes and buy-to-let properties, the reduced mortgage interest relief means that landlords must now pay income tax on all rental income, regardless of mortgage interest expenses.

From 2020, the 40% tax relief on mortgage payments for landlords is discontinued, so their tax relief is effectively halved. They will instead receive a 20% tax credit, meaning private landlords with a mortgage can

no longer offset mortgage interest costs in full against income tax bills on rent.

Types of Mortgage Schemes Available in the UK

 Fixed Rate Mortgage

A fixed-rate mortgage is one in which you make the same mortgage payment at the same rate for a certain period of time, generally 2 to 5 years. Even if interest rates vary with the lender or the Bank of England, your rate will stay constant for the term of the agreement. After the offer expires, you should hunt for a new one since you will be placed on the lender's standard variable rate (SVR), which is frequently a higher rate.

 Tracker Mortgage

When setting your personal interest rate, tracker mortgages essentially 'follow' the Bank of England base rate month after month. As the BofE rate rises, so will your mortgage interest rate, and vice versa if it falls.

For example, if the BofE base rate is 0.75%, the lender may charge an extra rate of 1.25%, resulting in a 2% mortgage interest rate. If the BofE base rate rises to 1%, the lender's extra rate will still be applied, making your mortgage interest rate 2.25%.

Considerations for Turning Buy-to-Let Mortgaging Into A Business Move

Because the tax relief has been discontinued, buy-to-let landlords now pay tax on rental income based on revenue rather than their profit after mortgage interest is paid. It is common for mortgage buyers to consider setting up a limited company. And the good news is that mortgage interest is treated as a business expense. So if the property is owned by a limited company, it may be eligible for corporation tax exemptions. However, it is essential to have complete market knowledge when taking this route. Get professional financial advice from a certified mortgage consultant or tax expert before making a decision.

Consulting With An Independent Buy-to-Let Mortgage Broker

The Mortgage Consultancy is a highly reputed home mortgage broker with a portfolio of over 65 lenders. However, as an independent buy-to-let broker, the firm does not represent any mortgage lender. They will rather charge a flat fee from mortgage buyers for providing unbiased market insights and personalised advice.

Conclusion: The Current Prospects of Buy-to-Let Morgaging in the UK

In the United Kingdom, buy-to-let mortgages are not what they used to be. Yet, with careful and monitored investing, you may be able to earn continuous rental income.

There are various options for renting out right now, such as Airbnb or Homestay. Rental yields in certain areas of the United Kingdom, such as Liverpool, Glasgow, and Leicester, can approach 8%, while others fall below 3%.

Simultaneously, you may benefit fromcapital growth as your money grows and the value of your property rises. You may also obtain insurance to cover rental revenue loss, damage, and legal expenses.