27th March 2019
Have you considered getting a property to let out? You wouldn’t be the first Contractor. Many Contractors have contemplated the idea of owning another property to rent out, providing them with a steady income stream alongside contract roles. However, getting a buy-to-let Contractor mortgage can be very confusing as they work very differently from standard mortgages. With that in mind, dive into this Contractor’s guide to buy-to-let mortgages and discover everything you need to know.
A buy-to-let Contractor mortgage is simply a product designed for contracting landlords to allow them to borrow money to buy properties to let.
Unlike normal mortgages, buy-to-let mortgages are provided on an interest-only basis. This means that, for each month of the mortgage term, you will only need to pay interest on the loan. The amount you’ve borrowed will have to be paid back at the end of the term. While this can be good in the short term – as your outgoings will be less each month – it is important that you have a plan in place to pay off the loan or refinance at the end of your mortgage term.
In contrast, with a ‘normal’ mortgage, your monthly repayments will cover the interest and a portion of the debt. Meaning that over the mortgage term (and assuming every repayment has been met), the value of the loan will be paid back.
How much you could borrow for a buy-to-let Contractor mortgage is linked to the amount of rental income you expect to receive. Some banks and mortgage lenders expect the rental income to be around 25% higher than your mortgage. For example, if your monthly mortgage repayments are £500, it is expected that the monthly rate should be at least £625. However, it is important to note that all providers have different affordability calculators, so it is best to speak to an adviser to understand what buy-to-let mortgage you could attain.
Another factor that could affect you getting a buy-to-let Contractor mortgage is your deposit. A general rule is that you will need to provide a deposit that is slightly larger than your average mortgage. This is to reflect the higher risk on the part of the lender since the regularity of the mortgage payments depend on your potential tenants keeping up with rent payments.
In buying a property that is to be let out to other people, you need to consider the additional costs involved, beyond the mortgage interest repayments. These include:
Maintenance – as a landlord, you will need to make sure that you’ve got enough money set aside to keep up with any maintenance costs associated with the property.
Tax – both capital gains tax and income tax are important to consider if you want to purchase a property to let out. These can be offset against your rental income.
Letting Agent Fees – letting agents can help you deal with all of the complications of setting and maintaining a rental property. However, they will charge you for their service for as much as 15% of the monthly rent. Consider whether the absorption of these management tasks is worth the cost to you.
If you’re thinking about getting a buy-to-let Contractor mortgage, there are a few questions that you should ask yourself.
Renovation and refurbishment projects tend to be popular as you can add value (auctions can be a good source for these kinds of properties). On the other hand, new build properties require less time and money invested and are ready for tenants to move straight into.
But most importantly, you will have to ask yourself who will be renting the property.? Is it a student? A family?
As most mortgages aren’t designed for Contractors, some lenders may be resistant to offer you a buy-to-let Contractor mortgage. We take the time to understand your situation so no matter what your plans are, whether you’re looking for a property to move into or a buy-to-let, we will search the whole of market to find you the best deal. See how we can help you by having an initial Welcome Call with one of our expert advisers.
All content is accurate at the time of publication
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