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Buying a property can be both confusing and stressful. Understanding your financial scope and deciding to take the plunge of buying a new property is hard enough, without even having found the property you want to buy.
There are so many ways to go about investing in property; one of them is buy to let. While most people buy a property to use themselves, either as a living or working space, property investors buy up properties in order to let them out to others who need them. However, these types of investments come with a different set of rules and are a different financial ball-game altogether.
Buy to let involves a limited company or an individual purchasing a property in order to immediately let it to another party. This means that the owner of the property won’t utilise the space for their own business or living space, but will hand the space over in a rental agreement to another company or individual.
This provides the owner of the property with an income that can supplement other endeavours and maintain their assets. Buy to let can be done by an individual, for example a landlord who wishes to rent out their house, or by a company who wishes to let out the space under a company name.
You can still get a mortgage when you buy to let, but these are different to a standard mortgage. Many lenders are more careful about providing a mortgage in a buy to let agreement than a standard agreement. Depending on a multitude of factors, buy to let mortgages can be more difficult to obtain, but lucrative to maintain.
Buy to let under a limited company name is different to applying for a buy to let mortgage as an individual. There are different criteria, rates and rules to abide by. However, it is very common for limited companies to buy to let under a company name. Below is a list of potential variables to consider when taking this option.
– The age of your company. Are you setting up your limited company in order to buy to let? Or alternatively, do you run an existing company that wants to buy up more property? – This will change the way your loan application works. Although a new company poses risks to the income of the lender, an existing company may also find a mortgage application tricky, based on their existing assets.
– Rental income. As a limited company with a buy to let mortgage, the income you gather from renting the property out needs to equal at least 125% of your mortgage payments based on a stressed rate of interest. This means you must be able to charge higher prices for your tenants in order to be eligible.
– Consider your credit score. If your limited company has poor credit history, buying a new property under a buy to let mortgage can be difficult. Although not impossible, the options may be more limited.
Remortgaging is applied when you keep
living in your present property while applying for another mortgage deal with a new lender. Before finding out how to remortgage and get the best offers from experts like Ascot Mortgages, you have to check meeting what parameters of the deal that can help you succeed the most. The range of background factors varies a lot — from the recently changed loan-to-value ratio or your existing agreement coming to an end.
Whether you are trying to get a more beneficial deal or searching for funding to improve your home conditions, remortgaging is one of the most advantageous scenarios to consider.
What are the risks? The risks if you buy a property to let, with no intention of living in it yourself, means you are relying on a third party to provide income for that property’s mortgage payments. This means that if your tenants fail to provide your rent, or you cannot find a tenant to occupy the space, the lender may lose out on repayments.
Why is the deposit higher for a buy to let mortgage? The minimum deposit for a standard mortgage is approximately 5-10% . For a buy to let mortgage, the deposit is approximately 20% – a significant increase. This means that a homeowner who lives in the property can be lent around 95% of their mortgage; a buy to let property owner may be lent 80% of the total property cost.
Most buy to let mortgages are interest-only. Interest-only refers to the amount of money paid back each month. In an interest-only repayment plan, the property owner pays back the interest they owe to the lender ONLY, rather than the whole amount of the monthly repayment.
This means that the monthly cost is cheaper, while the initial end-cost is more expensive, as a large sum will still be owed. Standard mortgages are usually different to this, wherein the owner of the property pays back their mortgage in monthly capital and interest payments. This is more expensive month-to-month, but it means they may be able to pay off the total sum owed more quickly.
All in all, no matter the age or size of your limited company, there are buy to let options out there. As a company owner, making this investment allows your company to expand both its assets and its income in one move.
To apply for a limited company buy-to-let mortgage, you’ll typically need to approach a specialist lender or use a mortgage broker familiar with these products. Required documents often include:
Yes, the LTV ratios for limited company buy-to-let mortgages can differ from residential mortgages and often vary by lender. Typically, LTV ratios for these mortgages might be lower, meaning you’d need a larger deposit. Always consult individual lenders for their specific LTV criteria and offers.
Yes, it’s possible for a newly formed limited company, commonly referred to as a Special Purpose Vehicle (SPV), to secure a buy-to-let mortgage. Lenders will, however, typically assess the personal financial standing and creditworthiness of the company directors and shareholders. It’s important to approach lenders or products tailored for SPVs in these cases.
If the company’s financial circumstances change, this could impact the terms of the mortgage or the ability to meet mortgage repayments. It’s crucial to notify the lender of significant changes to the company’s financial status. If the company struggles with repayments, the property could be at risk of repossession. However, lenders typically prefer to negotiate and find a solution rather than taking immediate action, so open communication is key.