Buy to Let

Buy-to-let mortgages have been popular in the UK for a number of years.

However because they are more complex than standard home loans it is important to fully understand the risks and any costs associated with this type of property investment. The amount you can borrow is usually 75% of the property value based on the rental income varying from 125% to 145% of the interest-only mortgage costs at the lender’s stipulated pay rate.

Buy-to-let mortgages are normally only available to existing home owners, although some lenders will consider lending to First Time Landlords.

As well as the mortgage repayments you will also be responsible for buildings insurance, service charges and ground rent (if the property is leasehold), general property maintenance and letting agent charges - if applicable.

The tenant is responsible for other property-related costs such as council tax, TV license fee and utilities. The tenancy agreement should set out who is responsible for each of these payments.

Letting agents can be a source of valuable advice and if you are new to the buy-to-let market using a reputable letting agent can remove much of the administrative burden by selecting tenants according to your instructions, taking up references, compiling a full property inventory, drawing up a tenancy agreement, collecting an initial deposit and monthly rent from the tenant and deposit and monthly rent from the tenant and to periodically inspect the property, check that the tenant is happy and alert you to any major problems that need attention.

Letting agents charge 10-20% of the monthly rental income and in addition there can be a one-off set up fee.

As a buy-to-let landlord you need to understand your duties and obligations as well as your legal and financial obligations and when to call on professional support - such as a solicitor or an accountant to help you with any legal or financial matters.

You should arrange to have a tenancy agreement drawn up between the landlord and the tenant which is most likely to be an assured shorthold tenancy agreement, AST, and which is regulated by the Housing Act 1988, as amended, and provides limited security of tenure to the tenant for 3, 6 or 12 months.

Landlords in Wales are now required to hold a Landlord’s Accreditation certificate and to agree to follow a Code of Practice to ensure minimum professional standards in private renting and to remove rogue landlords from the sector.

The proceeds from the sale of a BTL property are subject to capital gains tax and as calculating this liability can be complicated, clients should consult a qualified accountant.

Previously, tax was payable on the profits from letting the property less any allowable expenses - however from 6th April 2016 individual landlords will no longer be able to claim finance costs as a deduction from rental income. It will be replaced with a basic rate tax reduction from the individual’s income tax liability.

The proposed changes will apply from 6th April 2017 but will be phased in over 4 tax years so that the full impact will not apply until 6 April 2020. However, as the effect of these changes will result in an increase in the tax liability for many landlords, those affected should start considering the impact of these changes on the cash flow and profitability of their business now.