Buy-to-let mortgage guide | Mortgages for UK property investment

by Barclays Wealth International on October 23, 2010

Barclays International Mortgage Guide

What this buy-to-let mortgage guide covers

This guide will introduce you to getting a buy-to-let mortgage.

A buy-to-let mortgage is necessary if you want to borrow money to buy a property in the UK as an investment with the intention of renting it out to other people.

Will you be able to get a buy-to-let mortgage?

These are some of the questions you will need to ask yourself:

Can I raise a big enough deposit?

The deposit required for a buy-to-let mortgage is generally higher than that required for a residential mortgage. Generally speaking you will need to be able to raise a deposit of at least 40%, though this may be higher depending on your circumstances.

Will the rental income of the property be sufficient?

The rental income likely to be generated by the property (verified by an independent source) will need to be around 125% to 135% of the monthly interest on the mortgage. This allows for times when the property is not occupied and earning money.

Do you have either a UK credit history or an international bank account?

If you have recently moved to the UK then your credit history will be limited. In this case most lenders may not offer a mortgage. However, if you have an international bank account you might be able to get a buy-to-let mortgage regardless of your UK credit status.

Important information

Property ownership in the UK is a process governed by rules and traditions, some of which might be unfamiliar. They can have a significant effect on the legality and cost of your property transaction. Here are some of the key points that you should keep in mind.

Surveys and searches

Land Registry search. The conveyancer (the person responsible for the legal transfer of the property) will request a Land Registry search to legally register the buyer as the new owner of the house.

Local Authority search. This is to check if there are any development plans on the property or surrounding area that could affect its market value.

Valuation survey. This is required by the mortgage provider to make sure that the property is worth more than the money they are lending.

Structural survey. A structural survey provides a valuation of the property, and assesses the structural soundness and possible costs of any work that may need doing.

Fees

As well as the survey and Land Registry search, you will have to pay a number of other fees:

  • Arrangement fees. The mortgage provider will charge a fee for arranging the loan.
  • Legal or conveyancing fees. The cost of these can vary considerably, and often reflects the quality of work that you are receiving.

Taxes

Capital Gains Tax. This might apply when you sell the property. It will depend on a number of factors such as the value of the property, how much time you spend in the UK and what other properties you own.

Stamp Duty Land Tax. This charge applies as follows:

  • There is no stamp duty land tax on properties up to £125,000
  • 1% is charged on properties between £125,000 and £250,000
  • 3% is charged on properties between £250,000 and £500,000
  • 4% is charged on properties over £500,000.

Your own national and personal tax considerations. Your tax position in relation to UK property ownership may be affected by a large number of factors such as your own country’s tax regulations, your marital status, your work status and others.

Insurance

Buildings insurance. You are obliged to take out buildings insurance on a property for which you have a mortgage. This insurance covers the fabric and structure of the building itself for problems such as subsidence and fire damage.

Contents insurance. The tenants should take out their own contents insurance, as this provides cover for personal possessions held within the property.

The buying process

The relatively recent legislation requiring sellers to provide home improvement packs was intended to speed up the process of buying a property in the UK. This has had some success, but the process will still take several weeks or, in some cases, months.

Being a landlord

Once you have completed the property purchase, you will need to take on or delegate the responsibilities and implications of being a landlord.

Income tax. If you earn an income from the property you may be liable for income tax, depending on your circumstances.

Insurance. You might want to consider financial cover for the additional risks associated with letting a property, such as emergency repair cover, landlord’s liability and rental income guarantee.

Management. Finding good, reliable tenants and sorting out appropriate tenancy agreements can be time consuming. You may choose to delegate this task to a letting agent. This has budgetary implications as they will charge as much as 15% commission each month.

Regulations. As a landlord you are responsible for ensuring a number of health and safety requirements, such as fire regulations and maintenance of gas and electrical appliances.

Terminology

Here are some of the common terms used in the property market:

Chain. In many cases a property sale may only go through once the buyer has sold another property that they already own. A series of such people is called a chain.

Freehold. The permanent ownership of a property and the land beneath it.

Leasehold. The long term letting out of a property. A mortgage can be obtained on a leasehold providing it is long enough, e.g. minimum 35 years.

Loan to value (LTV). If a property is worth £100,000 and the mortgage granted is £90,000, the loan-to-value is 90%.

For more information or to apply

To apply or find out more information, speak to a Barclays Wealth International Mortgage Adviser. They/We specialise in providing buy-to-let and investment mortgages for property purchases in the UKJerseyGuernseyIsle of Man and Gibraltar.

Call us on +44 (0)1624 684305†

Visit the Barclays Wealth International website.

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If your loan is denominated in a currency other than sterling CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT.

Terms and conditions apply to all mortgage products. We strongly recommend that you obtain your own independent tax advice before proceeding with an offshore mortgage.

Barclays Wealth will require a first charge over the property.

Barclays Wealth is a responsible lender and when considering your application for borrowing, your financial circumstances will be appraised. Remember should you run into difficulties please contact us immediately.

In all forms of advertising and marketing material where repayments are quoted, we will show clearly a typical Annual Percentage Rate (APR). We will also clearly indicate in all lending-related advertising issued in Jersey that we abide by the Code of Practice for Consumer Lending.

† Lines are open 7am to 8pm weekdays and 8am to 5pm weekends and UK bank holidays, local time. Call charges may vary. Please check with your local telecoms provider. Calls may be recorded for training and security purposes.

The products and services described on this page are provided by the following companies, which are part of Barclays Wealth: Barclays Bank PLC in England and Wales, Barclays Private Clients International (Gibraltar) Limited in Gibraltar and Barclays Private Clients International Limited in the Isle of Man, Jersey and Guernsey. For further information on these companies and Barclays Wealth please read the Important Information.

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