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If you are interested in becoming a landlord, you may already know that buying to rent differs quite a bit from buying properties to live in. In our useful guide, we will discuss how buy-to-let mortgages work, why landlords should invest in a buy-to-let property, and everything else you need to know. 

What is a buy-to-let mortgage?

A buy-to-let (BTL) mortgage is for those who are looking to invest in property, rather than getting a mortgage for somewhere they want to live. You can obtain a BTL mortgage if you:  

  • Want to invest in property 
  • Understand the risks of investing in property 
  • Have a good credit score and do not owe too much money to other lenders
  • Earn over £25000 a year
  • Are a certain age – for instance, some lenders may refuse to approve your mortgage if you are above 65 years old

How do buy-to-let mortgages work?

The maximum amount you can borrow on a buy-to-let mortgage depends on the rental income you expect from the property. Most likely, the lenders will need the rental income to be around 30% higher than your mortgage repayment.

You may be wondering, how are your BTL mortgages different from ordinary mortgages? There are a few key differences: 

  • The interest rates on buy-to-let mortgages are usually higher
  • The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value, however, it can also be a lot more
  • The fees tend to be much higher

Are buy-to-let properties worth it?

You may have heard buy-to-let mortgages have been subjected to quite a few increases in recent years, and be wondering if buy-to-let is worth it? The recent changes state that you need to pay a tax on your whole profit, rather than your rental income profit. This sees landlords in the higher tax brackets paying taxes of 40% of what they’ve earned.

These tax changes may be a deterrent from getting a buy-to-let mortgage – however, to overcome these significant tax increases, landlords are now recommended to set up a limited company. This way, you can avoid these high rates while paying a lower corporation tax – which currently sits at 19%.

With many taxes on a buy-to-let mortgage, you may be concerned about your profit return on your property. That’s why, in order to maximise your profits, you should look into short-term letting. By utilising short-term letting as a viable method of income, you are able to maximise profits – as you can charge higher rates per night than you would while undertaking a long-term let agreement.

Equally, you can gain profit from long-term letting, too – especially if the tenants remain in-situ (which means renters who previously lived there with the original owner stay living in the property). This allows them to stay living there, and continue to pay rent like normal – but to a new landlord instead. This is beneficial for a new landlord as it sees a seamless stream of income – but, by choosing this option, you may be losing out on potential value from short-term letting. Short term-lets are becoming increasingly popular as people look for more flexible ways of living. You can find out more about short-term letting in our helpful guide.

How can Seven Living help you?

Being a landlord often comes with a lot of paperwork and other hassles, such as managing listings, cleaning and property maintenance. That’s why, here at SevenLiving, we work to minimise the stress of letting by handling everything for you. Our services allow property owners to:

  • Maximise their rental return
  • Experience a 100% turn-key service
  • Stay in your holiday home or investment property

We can help with all aspects of managing your buy-to-let property – whether you need assistance with the listing, maintenance, pricing even with details such as guest management. If you are interested to find out more, contact our helpful team today.