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Our property investment expert is Jeni Browne, Sales Director at
Mortgages for Business
www.mortgagesforbusiness.co.uk
Tel: 0345 345 6788
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Question
Renting a room
I am about to move up the housing ladder from a one-bed flat to a two-bedroom house. The plan is to rent out my second bedroom on Airbnb, or equivalent. Do I need a buy-to-let mortgage to do this and if so how would I go about obtaining one?
Answer
As you will be living in the property you won’t qualify for a buy-to-let mortgage but you will need to find a residential mortgage lender that allows you to rent out a room to a lodger and/or rent out a room via Airbnb (and other similar sites). There are a handful of lenders that will allow this and a few will take the rent from a lodger into account when assessing how much you can afford to borrow. Do get in touch if you would like talk through the options.
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Question
Minimum deposit needed for a buy-to-let
I wondered whether you could tell me how much of a deposit I would need to purchase a buy-to-let property? For example, are there any 90% or 95% mortgage deals out there? My wife and I are homeowners and have been left £15,000 in an inheritance which we would like to invest in a buy-to-let but we are not sure we have enough.
Answer
The very maximum LTV on a buy to let is 85%, and thus would require a 15% deposit from you. However, to check that you can afford the mortgage, the lender will apply a rental income calculation too. Generally speaking, most lenders are more comfortable lending up to 75% LTV.
It sounds like you need to do much more research before making any decisions. You should talk to an accountant to find out about the tax implications of becoming a landlord. We’ve got lots of information about financing on our website to help would-be landlords. You should also think about joining a landlord association (NLA or RLA for example) to support you too.
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Question
Why is buy-to-let so taxing?
I am considering investing my money in the buy-to-let market. In fact, I have been thinking about this for years and am now in a position to pursue this seriously. I have started looking into it and, to be honest, am being scared off by what appears to be a tangled web of tax implications, mortgage interest relief cuts and regulations. I am asking myself if it’s really worth the hassle. So, my question to you is this – can you explain the tax implications to me and how the mortgage interest relief now works? Can a normal ‘man on the street’ such as me arrange this myself or would I need to employ an accountant?
Answer
Yes, it certainly is more complicated than it used to be! It used to be that landlords could deduct mortgage interest and other allowable finance costs from their rental income before calculating their tax liability. However, from April 2020, the tax relief will be restricted to basic rate of income tax (currently 20%). This new scheme is already being phased in, such that for the tax year 2017/18, landlords will only be able to deduct 75% of their finance costs from their rental income with the remainder due a reduction at the basic rate, then 50% in 2018/19 and 25% in 2019/20.
As we are not tax advisers, I am afraid that I cannot explain how the new rules might affect you, as everyone’s situation is different. Instead, I encourage you to get some advice from a qualified professional (accountant or tax adviser) who will be able to talk through the changes and also advise you on the best way to proceed (personally or via a limited company) so that you begin your venture into buy to let on the right footing.
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Question
Shopping around for a new lender
Do you recommend landlords generally stick with the same mortgage provider for all their buy-to-let properties or shop around? I am about to add my third property to my buy-to-let portfolio and wondered whether there would be any advantage in sticking with the lender for my other two properties. I would be grateful for any advice.
Answer
There is no merit for sticking with the same lender and so we will always advise our clients to take the most cost effective deal available to them at the point of application. However, some borrowers like to stick with one lender as they are familiar with that provider and understand how they work… this is understandable, but probably not the best financial approach.
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