Take financial advice if you want to invest in a buy to let
Tuesday 11 February, 2020
John Pringle our mortgage broker in North London reviews your options if you want to invest in a buy to let property and require a buy to let mortgage. We recommend calling our mortgage broking team on 01707 872000 for personalised buy to let mortgage advice .
The buy to let market is less buoyant than in recent years
The buoyancy of the buy to let market has reduced since the UK tax changes occurred in 2016 and 2017. These have had an adverse effect on buy to let landlords as stamp duty increased in 2016 and a reduction in income tax relief was phased in since April 2017.
Lenders have to assess buy to let applicants differently
The Financial Conduct Authority (FCA) changed the rules so lenders had to assess buy to lets differently in terms of affordability, so a client may need an increased amount of rent in order to borrow the same amount as they previously had. This has led to lenders having to adapt to make sure it is still possible for them to lend to buy to let investors. Different lenders have taken a different approach and what is best for one client won’t be the same for another.
Lower rate taxpayers who want to purchase a buy to let could borrow more
Due to these changes, someone who isn’t a taxpayer or who is a basic rate taxpayer could now borrow more than someone who is higher rate taxpayer, as they will only potentially pay 20% income tax on the rental income whereas if someone is a higher rate taxpayer they will pay 40% income tax. As the lender uses the rental income to dictate how much the client is able to borrow, they have to factor in that somebody who is a higher rate taxpayer will have less rent available to pay the mortgage.
What options exist for higher rate taxpayers or additional rate taxpayers wanting to invest in the buy to let market?
However, this doesn’t necessarily mean that there aren’t other options for those people who are higher rate taxpayers, or additional rate taxpayers. One of these options is using a method called top slicing. Not every lender offers this, and different lenders have introduced this with different methods. But the core idea is that as long as the rental income meets a certain requirement, the applicant is able to use their surplus income to meet the shortfall between the desired level of rental income and the level of rental income on the rental property. This doesn’t work for all clients as if they have a certain level of outgoings, they may not have any surplus income to make up the shortfall. But for certain clients this is a very beneficial tool which can allow them to borrow more than they otherwise could.
Purchasing a buy to let in a limited company could be the way forward
John Pringle, Mortgage Broker & Protection Adviser in Tottenham, North London said: ‘Another method is to purchase a buy to let in a limited company name. Once again not all lenders will allow a limited company to borrow money from themselves and as a result those lenders that offer it tend to charge higher mortgage rates and fees. But as it is a company that is purchasing the property rather than an individual, the taxation around the rental is calculated differently. Due to this most lenders use a different calculator to work out the amount of money that can be borrowed based on the rental income, which is more generous than purchasing a property in a personal name. However, if you are looking to purchase a buy to let in this way, we highly recommend speaking to a tax adviser as although this method has advantages there may also be disadvantages that you need to be aware of.’
John Pringle, Mortgage Broker & Protection Adviser in Tottenham, North London continued:
‘If you are interested in purchasing a buy to let investment, we recommend that you take mortgage advice from our Thomas Oliver mortgage broking team based in Goff’s Oak. Our qualified mortgage brokers can review your financial circumstances and provide expert mortgage advice. We can assess your personal circumstances to see if you would benefit from setting up a limited company in order to purchase a buy to let investment. Our financial advisers will work with your accountant to offer you joined up financial advice as you might require tax advice if you want to set up a limited company. If you want to organise your buy to let mortgage through a lender our mortgage advisers will review the mortgage market to find lenders that can offer you the most appropriate buy to let investment for your circumstances. If you want to organise a buy to let investment call the Thomas Oliver mortgage broking team on 01707 872000. We offer a free initial mortgage consultation, so you get the right mortgage advice.’
In Summary…
At Thomas Oliver, we have access to lenders who are able to consider both top slicing and purchasing in a limited company name and we work with our clients to see what method works best for them and their future plans.
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