Buy To Let Rent to Mortgage Advice

CGM_2

Hi

I have spoken to two seperate mortgage advisors in the processes of purchasing my first buy to let property and they have both given me conflicting information, would anyone be able to advise.

I am told that the rental income needs to cover 125% of the mortgage, which both advisors have informed me, but the differing information is the Interest Only or repayment side of things.

One advisor has told me that i need to cover 125% of the interest only mortgage or 125% of the interest element of the repayment mortgage (ie, no difference of if its interest only or repayment)

However, the second advisor has told me that i would need to cover 125% of the interest only mortgage or 125% of the entire monthly repayment of the repayment mortage (ie, interest and capital repayment)

could someone in the know from past experience maybe shine a little light on this for me?

Much appreciated

Regards

CGM

silvercar

I am looking into a BTL mortgae at the moment. The rules seem to change depending on the lender. some require 130% some 125% coverage, some using their standard rate, some their offer rate, some a percentage over base rate. Some will allow other things to be considered (eg your salary if your not fully stretched elsewhere). It got too complex for me to work out and I need an offer quickly, so I contacted a broker.

pipee

I would say it would be 125/130 of the interest only mortgage (mine is, with the Coventry). It doesn't always make sense tax wise to have a capital repayment as you would be paying tax on the 'repayment' side of things

Scouse_Mick

Pipee,

I'm intrigued by your response. In what case would you pay more tax on a repayment mortgage than an interest only?

nrsql

The interest on the mortgage will (probably) be allowable as an allowance against the rent for tax purposes. If you have a repayment mortgage then you will be paying off the capital and so the interest will reduce and so you will have less allowance.

Often buy to lets are interest only for this reason. It's up to you as to what you go for but you might want the lowest payments possible in the first instance to build up a cash buffer. As you say this is your first buy to let it sounds like you are expecting more so would maybe want to increase the motgage as the property value increases to finance more rather than pay it off.

Only you can decide what is best for you.

Scouse_Mick

Thanks nrsql. I see what you mean.

I would guess in the long term you're still better off repaying the capital though. Interest (even tax deductable interest) is still a loss at the end of the day.

gallygirl

Scouse_Mick wrote:

Thanks nrsql. I see what you mean.

I would guess in the long term you're still better off repaying the capital though. Interest (even tax deductable interest) is still a loss at the end of the day.

I agree, but one other point - when I do my BTL acounts (simple profit & loss) we don't make any money, or virtually none, as all the mortgage paymenst as classed as an outgoing. However, according to the tax man, as capital repayments are not a claimable expense, I make a profit & have to pay him tax every year... funny that :mad:

poopscoop

if you want to go capital & repayment you can ask your lender for a a separate breakdown for the interest only amount.

Gorgeous_George

I bought my BTL for cash but soon realised I needed to mortgage it to the max to offset the tax liability.

I invested the money in cash ISA at 6% (fixed for 5 years), a few other places and the bulk of it I put in an savings acount attached to my residential mortgage earning the equivalent of 5.25% tax free.



GG

rebl43

CGM,
I don't suppose you are in the armed forces?
If you are, it's a little known fact that you can get a regular mortgage and still let your property as there is a loophole in the buy to let rules.

CGM_2

rebl43 wrote:

CGM,
I don't suppose you are in the armed forces?
If you are, it's a little known fact that you can get a regular mortgage and still let your property as there is a loophole in the buy to let rules.

Unfortunatly i'm not, but interesting to know all the same.

Thanks everyone for your help

CGM