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Interest-only buy-to-let mortgage
An interest-only buy-to-let mortgage is a big responsibility for the borrower. It serves to the needs of a considerable part of the housing companies and commercial landlords. Shine Mortgages becomes your platform to bring the relatable interest-only mortgage deals from varied lenders in the industry. It is our commitment to arrange practical loan deals that match your commercial needs without adding burden to the future investment plans.
What is an interest-only buy-to-let mortgage?
An interest-only buy-to-let mortgage is a type of property loan in which the repayments are made by paying the interest part of the instalment. No principal amount is included in the repayments, as that is paid at the end of the tenure. Due to this feature, this product is called as the buy-to-let mortgages interest only. The applicants use it to buy a property or home that they want to rent out.
Who can apply for interest-only buy-to-let mortgages?
- People with varied conditions apply for the mortgage –
- A borrower who wants to invest in flats/houses/residential properties.
- A borrower with the financial capacity to pay the principal amount in the lump sum at the end.
- The annual earning of the applicant is £25,000 +
- An applicant under a specific age limit. The maximum age limit when the buy-to-let interest-only mortgage can end is 70 or 75 years.
Table of content –
- What is interest-only buy-to-let mortgage?
- Who can apply for interest only buy-to-let mortgages?
- Difference between interest-only mortgage and buy-to-let mortgage
- Factors to consider while you take an interest-only buy-to-let mortgage
- How much you can borrow.
Difference between interest-only buy-to-let mortgages and ordinary mortgages
On many aspects, the interest-only BTL mortgages are different from other ordinary mortgages. Here is a clear difference between the two ends to help you gain an enhancing piece of knowledge. Have a look -
|Interest-only buy-to-let mortgages||Ordinary mortgages|
|High-interest rates||Lower interest rates|
|The minimum deposit size is 25%||The minimum deposit size is 5%-10%|
|Most of the interest-only BTL mortgages are interest-only||Most of the ordinary mortgages are repayment based|
|The major part of the BTL mortgage industry is not regulated||Other types of ordinary mortgages are regulated|
|To approve the mortgage the lender considers the rental income capacity of the property||The lender considers the repaying capacity of the borrower|
Factors to consider while you take an interest-only buy-to-let mortgage
You know very well that so many aspects cross your way while borrowing funds through a mortgage. They are the vital part of the overall procedure. Some, related to the interest-only BTL are here –
- Landlord insurance – It is also known as buy-to-let insurance and building insurance. Landlord insurance is a vital part of the mortgage process; it covers your property from varied risk and damage threats. Three things that get covered through the insurance is – 1) cover for property 2) landlord liability and 3) Contents. The content insurance is not compulsory, but the complete insurance deal covers the existing stuff such as furniture, curtains and carpets. The lender may arrange a house survey to keep things safe and rational.
- Capital gain tax – This tax is applicable when you use a property to make a profit and buy-to-let properties come under this category. The tax is relatively high and mandatory. The amount you pay depends on the bracket applicable in your financial conditions as a borrower. The minimum is 18%, and this limit is (as you know) is prone to changes.
- Income tax – From April 6, 2020, the things have changed. The tax relief for the costs is now restricted to the basic income tax rate, and currently, it is 20%. Previously, it was possible to deduct the mortgage interest and other costs from the rental income, but conditions are different now.
- Stamp duty – According to the new rule stamp duty after Covid – 19, the minimum threshold for the stamp duty has been extended to the £500,000. It means that you do not have to pay any stamp duty on any property less than this amount. This decision aims to save precious pounds of the homebuyers, especially first-time buyers.
Stamp duty on buy-to-let property post covid-19
|House Price||Buy-to-let rate|
|Up to £500,000||3%|
|£500,001 - £925,000||8%|
|£925,001 - £1.5m||13%|
The above tax and insurance rules are applicable on all the interest-only buy-to-let mortgage deals; it is better to hold the root of all such costs before making a borrowing decision. Shine Mortgages aims to keep all of its customers informed because we believe and have experienced that ignorance creates hurdles.
How much can you borrow?
As you know, for a buy-to-let mortgage, the lending companies always seek a high rental income generated by the property. Higher is the rent; stronger is your affordability for the funds. The significant points below decide the conclusion on your borrowing limit.
- • The lenders usually expect that the rental income on your property should generate at least 125% of the monthly interest payment. Several lenders may ask for as high as 140% rent of interest part, all depends on the lending policies and your circumstances as a mortgage borrower.
- • You need to do in-depth research on the similar properties to know the possibilities on the rent part. Make rational predictions with an interest-only buy-to-let mortgage calculator to avoid last-minute confusion and arrange required deposit money at the right time.
- • Loan-to-value ratio of the buy-to-let property is based on the comparison between the property value and the size of your loan. To avoid rejection, we give you simple advice; do not apply for a mortgage amount that is not bearable for your property price.
The most significant role is always of the deposit size. Bigger is the down payment, more straightforward and smaller is the mortgage, and in case of the high-interest buy-to-let mortgages, it is better if you arrange more and more funds for the advance payment.
Shine Mortgages is ready with its team of experts and best buy to let interest only mortgage options for every location in the UK. Our 24x7 online presence will help you get timely answers to your search for mortgage deals.