Buy to let mortage?? What's the deal??

Toda1977

Hi all,

I have been offered to buy out my sisters share of a bungalow that we rent out.
I am trying to find out how to do so. The mortgage is entirely in her name but technically i own half. I will be required to buy her out, but i would like to continue to use the property for renting.

Should i go for a buy to let mortgage or just a repayment??

What the difference??

I already own a property that my family and i live in. Will this make a difference.

Any advice will be gratefully recieved.

MarkyMarkD

Most lenders won't let you buy a property, to let out, with a normal residential mortgage. So you would be better off with a specific buy to let mortgage.

But those buy to let mortgages will, generally, have higher rates and/or arrangement fees than residential mortgages.

The fact that you own your own property will mean that you can't credibly claim you are buying it to live in (and that would be fraudulent in any case).

Toda1977

Thanks, I wasn't aware of the fraudulent side. My situation may have changed already!! But i'll keep it in mind.

Thanks again.

JanCee

Buy to let mortgages are very competitive these days so it would certainly not be worth taking the risk of using an ordinary repayment mortgage. Arrangement fees are no more than residential mortgages but they tend to lend only about 70% - 80% of the valuation of the property. You should also consider interest only, as the interest you pay can be offset against the rental income for tax purposes.

gizzmo_2

JanCee wrote:

You should also consider interest only, as the interest you pay can be offset against the rental income for tax purposes.

For a Buy-to-let mortgage is it better to take interest only, or repayment? With the latter at least at the end the property is yours outright and someone else (your tenants) have paid the mortgage for you.....effectively.

With interest only - you would probably be forced to sell on paying off the mortgage in order to realise any gains, wouldn't you? But I guess repayments are lower, meaning you have more cash sooner to invest in other properties...

As someone who is considering a buy-to-let investment I'm wondering which is better?

dougk_2

I think it is far better to do Interest only, otherwise each year the amount you can offset against the income tax side. (certainly if you a higher rate tax payer).

My view is that if you keep to interest only the difference between an interest only mortgage and repayment mortgage can be invested to pay off the house at the end. So you could consider alternatives such as shares, endowments, ISA etc to pay back the capital borrowed. Ok you may not be guaranteed to pay the whole price off but then its not the house you are living in and the chances are you would seell it anyway as its difficult to live in more than one house at a time (unless its a holiday home or something!).

JanCee

gizzmo wrote:

For a Buy-to-let mortgage is it better to take interest only, or repayment? With the latter at least at the end the property is yours outright and someone else (your tenants) have paid the mortgage for you.....effectively.

With interest only - you would probably be forced to sell on paying off the mortgage in order to realise any gains, wouldn't you? But I guess repayments are lower, meaning you have more cash sooner to invest in other properties...

As someone who is considering a buy-to-let investment I'm wondering which is better?

Most buy to let investors choose interest only because it keeps the repayments low and you can offset the same amount of interest against tax each year for the length of the loan.

At the end of the mortgage deal you could just re-finance it. As long as the property was being rented out you would have income to repay the loan. Once you have one buy to let running successfully you are usually keen to acquire more. Although with property prices the way they are it gets more and more difficult.