Purchase of a rental property, BTL

If you plan to buy and rent out your property, you can use a specially designed mortgage for this purpose; BTL mortgage (Buy to Let). Banks consider loans for rental properties to be riskier. Therefore, interest rates are usually higher than for loans on the home we live in.

As always, it’s worth keeping an eye on your credit history and not getting too heavily into debt through credit cards or personal loans. Most banks require proof of our earnings. Most require earnings of around £25,000 per year to approve BTL mortgage. There are also some banks that do not pay attention to the level of earnings, they that want to see a prove of any income. The maximum age of the borrower is usually 75 years, although some banks may have lower age limits. The Loan-to-Value (LTV) ratio limit is at least 75%, so you’ll need a minimum of 25% deposit.

The amount you can borrow is based on the monthly rent you receive or are likely to receive. Usually, your rental income should cover 125% of the monthly loan repayments.

Most loans for rental properties are usually interest-only loans. This means you only pay the interest, but you don’t repay the capital. At the end of the loan period, you repay the entire original loan amount. Typically, the money comes from the sale of the property. If the property price has doubled after 25 years, the proceeds from the sale cover the bank’s debt, plus give us a 100% profit.

Loans for rental property purchases are also available in the form of traditional loans, providing regular capital repayment or part capital repayment.

It’s a good idea to consult with a mortgage advisor before taking out a loan to purchase a rental property. An advisor will help you choose the most appropriate offer.

Don’t assume that your property will always have tenants. There will certainly be periods when the property is not rented out, and you’ll need a financial cushion to cover the loan repayments.

You also need to remember to have savings to cover larger repair bills.

Capital Gains Tax on Property Sale

When selling your rental property, you will pay capital gains tax. If you are a taxpayer at the basic rate, the capital gains tax (CGT) on the sale of a second rental property is 18%. If you are a higher or additional rate taxpayer, it is 28%. Profits from the sale of property must be reported to HMRC, and any tax must be paid within 30 days.

Income Tax

The income you receive from renting out the property is treated as taxable income. Tax rates depend on your total income and are: 20%, 40%, or 45%, depending on the income tax bracket.

Rental property.