Do I have to get a Buy to Let mortgage??

haze45 · 4 April 2005 at 1:39PM

I'm currently letting out my property and have a (normal residential) fixed rate mortgage with Northern Rock - NR are already aware that I have been renting out the house. The fixed rate expires next month and I have just been advised by NR that if I were to remortgage with them, I have to take out a Buy to Let mortgage, at a higher rate.

Is this a normal procedure with most mortgage lenders??

payless · 4 April 2005 at 2:03PM

Whilst the term "remortgage to them" may be misleading

If you have a residental mortgage, then they reserve the right to charge a higher rate if you let the property ( suppose alternative is they could ask you to repay the debt / remtg eslewhere)

Appears they have not enforced this to date ( whilst in a fixed rate)

You could check out if you meet criteria / get better terms from a different lender

dougk_2 · 4 April 2005 at 2:33PM

Whilst you don't need to have a BTL mortgage in order to rent , you need to have the lenders permission. I think very few lenders will let you have a "standard" mortgage without loading it in some way as you are already renting the property.

Why should they (as the lenders are businesses) when they can get you on a BTL mortgage which are "designed" for this purpose.

Just shop around - the cost of BTL mortgages vary quite a bit. At one point a couple of months ago for instance B&W had BTL fixed mortgages cheaper than the fixed ones for standard mortgages available from Abbey!

Wig · 5 April 2005 at 6:00PM

OP,

Sounds fairly normal to me, you need to ask them what the terms of the new morgage will be. then you need to quickly look around for new quotes on a buy to let basis. Nationwide(subsidiary UCB) does them. They lend 3.25 x salary plus 6.5 x rental income which meets my needs in this department. They also allow overpayments of upto 500 per month.

With regard to previous post B&W (Bristol and West) I found the mortgage calculator somewhat lacking, and looks like a phonecall would be needed. A brief look showed they don't allow overpayments.

Also a really important thing is to check interest is calculated daily.

As an aside, I am looking at remortgaging my current home (owned outright) and using the money raised to buy the 'buy to let' property. This may or may not apply to your circumstance.

dougk_2 · 6 April 2005 at 9:50AM

Wig,

I think you are correct B&W do not allow overpayments - but to me that is not a bad thing!
My belief is as the interest on a BTL properties mortgage can be offset against the tax it is better not to overpay but invest this money. Same reason as I would have an interest only mortgage and use an alternative repayment method. I would rather overpay my residential mortgage on which I get no "tax allowance". Therefore the BTL mortgage should be to the maximum you have and keep the residential one to a minimum , especially if you can find a good BTL rate.

Mikiec · 6 April 2005 at 1:59PM

If you check out Lloyds TSB (Cheltenham & Gloucester) they may be able to help you as their Buy to Let and standard rates are the same. You just need to have 25% equity in the property or put down 25%.

herbiesjp · 6 April 2005 at 2:22PM

With C&G - your income has to be sufficient to support both loans (residential and BTL) and take into account 50% of the rental income.

Wig · 14 April 2005 at 12:09PM

dougk wrote:

Wig,

I think you are correct B&W do not allow overpayments - but to me that is not a bad thing!
My belief is as the interest on a BTL properties mortgage can be offset against the tax it is better not to overpay but invest this money. Same reason as I would have an interest only mortgage and use an alternative repayment method. I would rather overpay my residential mortgage on which I get no "tax allowance". Therefore the BTL mortgage should be to the maximum you have and keep the residential one to a minimum , especially if you can find a good BTL rate.

Thank you Doug, sorry my late reply, What you are saying seems to make sense, I am new to buy to let.

I have not yet fully got my head around what you are saying, in terms of what savings can be made. I suppose a basic anology of what you are saying is that if you don't need a student loan, it is better to take the money and put it into a savings account, because the interest earned will be more than the interest charged by student loans Co. But what I am trying to work out (with the mortgage) is whether the income-tax saved outweighs the interest saved by overpayment.

For example let's assume a 90,000 mortgage 5.3%/2years then 7.2% std Variable for the remainder. With a rental income of between 4,500 - 6,000 per year. Overpayment's of 500 per month.

Would you care to help me do the math please?

P.S. Would you have to get an interest only mortgage for the tax break? or can it be done with a repayment mortgage aswell?

dougk_2 · 14 April 2005 at 12:33PM

Answer the last bit first!

No you can do it with a repayment mortgage, but you can only ofset the interest not the full monthly payment.

The point is with repayment the amount of interest charged reduces each month so the amount you can offset gets less and less - okay the first few years it probably doesn't matter too much as the reduction is small.

With the figures you gave it really doesn't matter too much for the first year or two its the long term that matters. Also there are other costs you can offset against the tax on income (insuarnce, repairs, agents fees etc) so it looks like you would not be paying any tax anyway if you were overpaying for a year or so... After this you would have to sit down and review again.

Also if you are a standard rate tax payer then the savings from not paying tax are much low... at 40% (higher rate) then its more of an issue. Would you really want to give 40p in every pound "profit" you make to the government?

HLK · 14 April 2005 at 2:40PM

Wig wrote:

OP,

.....As an aside, I am looking at remortgaging my current home (owned outright) and using the money raised to buy the 'buy to let' property. This may or may not apply to your circumstance.

This probably wouldn't be your best move .. see other posts from Dougk ... you would not receive any tax relief on a domestic mortgage but you would on the buy to let.
We currently have a buy to let mortgage - interest only .. any overpayments are to our domestic mortgage.
Hope this helps.

Wig · 21 April 2005 at 9:22PM

Just a thought, I am yet to sit down and do the sums. If I have a buy to let mortgage, I can expect:

higher completion fee
fees to change lender mid term
higher fees on loan redemption
higher interest rates

When compared to a residential re-mortgage on my residence.

For example:
90,000 @ 7.04% (UCB SVR) interest first year = 6336
90,000 @ 5.74% (Tesco SVR) interest = 5166

difference = 1170

Considering the income will be between 5,000 - 6,000 the income tax on this (20%) would be about 1100 pounds. So it seems each individual needs to work out whats best for himself.

I realise this is not the end of the story, I will have to work out the complete cost of the mortgage in both scenarios. And factor in the fact that moving a resedential mortgage (to chase the good deals on offer) is going to be cheaper and easier than with a buy to let mortgage.

*I remember watching a program about property renovation, and the presenter said something about a developer looking to gain a percentage of rent ratio to the cost of the project. I can't remember now.

Was it that you would look for a return of 12% in rental income per year of the cost of the outlay? For me that sounds like a lot! my project could cost 115,000 and rent of only 5 - 6,000 per year (realistic figure of 4,500 - 5,000 normally - only 5 - 6K because the house will be let for the whole year in year 1) My figures represent less than 5% return. I wonder if I am mad for considering this?

Do I have to get a Buy to Let mortgage??

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