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Considering a Buy-To-Let Mortgage in Scotland?
Are you planning on buying a property in Scotland in order to rent it out, or maybe to use it as a getaway retreat for holidayers? In addition to being a valuable investment, it’s also a convenient way to make a passive income.
If you are thinking about a buy-to-let mortgage in Scotland you may have concerns about potential tax implications and other considerations. There’s no need to worry though because our expert team at The Mortgage Broker will be able to answer your questions and help guide you through the process of getting the best buy-to-let mortgage in Scotland to suit your needs. Do you: We have all the answers you need regarding a buy-to-let mortgage in Scotland.
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How To Geta Buy-To-Let Mortgage in Scotland
If you’re wondering about a buy-to-let mortgage in Scotland, you’ll find that it differs slightly from a regular mortgage on a residential property.
If, rather than live in your property, you are hoping to rent it out, you will be looking at a specific type of mortgage – a buy to let mortgage. High street lenders as well as more specialist lenders have a slew of options which can easily become confusing and a little overwhelming. Here at The Mortgage Broker we have years of experience and a huge range of industry contacts – our mission is to take the stress away from you and help you find the best mortgage deal possible.
Replacing the UK Stamp Duty Land Tax (SDLT) in Scotland, The Land and Buildings Transaction Tax (LBTT) was introduced on April 1st in 2015. A tax payable upon property transactions, it applies to residential and non-residential purchase and leases. An additional dwelling purchased for less than £40,000 will attract 0% tax. For purchases from £40,000 to £145,000 the rate will be 6% on the full purchase price.Land and Building Transaction Tax (LBTT)
Purchase Price Normal Rate Additional Property Less than £145K 0% 6% £145K – £250K 2% 8% £250K – £325K 5% 11% £325K – £750K 10% 16% Over £750K 12% 18%
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Understanding a Buy-To-Let Mortgage in Scotland
A lender will base their calculations on the rental income you will make from your property, in addition to your personal income amount.
You will need to:
- Put down a deposit
A buy-to-let mortgage deposit amount is typically higher than for a typical residential mortgage. You’re probably looking at about 25% of the property value although this can vary depending on the lender.
- Make regular repayments
Your buy-to-let mortgage in Scotland will typically be an interest-only mortgage where you make monthly interest payments but not repay the capital amount at this stage.
- Pay the amount in full
At the end of the mortgage term, the full amount owed is repaid to the lender. This is usually achieved by putting profits aside from the rent you’ve earned and/or by selling the property.
There are alternatives but this represents a usual path for a buy-to-let mortgage in Scotland. All your options can be discussed with our helpful and experienced team at The Mortgage Broker.
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What advantages does a buy-to-let mortgage in Scotland have?
There can be many advantages to securing a buy-to-let mortgage in Scotland. Including:
- Passive income stream
Renting out your property is a great way to make an additional income with minimal work involved.
- Spreading your investments
Diversification is generally a good idea when it comes to handling money. Adding a rental property to your financial portfolio helps prevent all your ‘eggs being in the same basket’ and decreases your financial risk.
- Potential for large profits over time
Of course, as with other investments, there is some risk involved and no guarantees, however property investments are typically viewed as relatively stable and house values do tend to trend upwards.
How Much Can I Borrow for my Buy-To-Let Mortgage in Scotland?
There are several factors taken into account when a bank decides how much to lend you. Some considerations include:
The lender will usually make what is known as a Stress Test Calculation, which is a calculation of the expected income from rent you will receive from your tenants. This used to be a simple multiplier but nowadays each bank makes their own calculations.
These calculations will also differ for fixed terms and tracker rates, as well as whether you are a higher rate taxpayer or not. The rental payments you receive will normally have to be 125% of your monthly mortgage payments.
Basically, the higher your deposit amount, the smaller your mortgage will be. If you can put down a larger deposit then the bank will view you as a lower financial risk – an important consideration when obtaining a second property.
Lenders will typically require a deposit of 25% of the property value to reduce risk to the lender.
With a buy-to-let mortgage in Scotland you will normally just be repaying the interest amount each month. This means that your monthly payments are significantly lower than for a typical residential mortgage.
The full amount of your mortgage loan will not have to be repaid in full until the end of the loan term.
This is essentially the Loan to Value rate – a percentage of the value of the property and the amount remaining to repay on your mortgage. The higher your deposit amount, the lower your LTV rate. A lower LTV means there is less to repay on the mortgage.
Lenders will always take into account your credit history before offering you a mortgage. This is an important aspect of their risk assessment.
Having a fixed rate means that your interest payments remain the same for a certain period of time, whereas with a variable rate your repayments can fluctuate based on any changes in interest rates.
There are pros and cons associated with both, but it’s worth noting that any volatility in interest rates could mean that you end up with a larger monthly payment amount.
Different Types of Buy-To-Let Mortgage in Scotland
You have a wide choice to consider when making a buy-to-let mortgage comparison. Here are some of the usual options:
- Are you a first-time buyer?
You have never owned a property before but you intend your first property to be an investment vehicle. Certain lenders will be able to provide you with a buy-to-let mortgage in Scotland. Here at The Mortgage Broker we can give you expert advice to help you to achieve your goal.
- Are you a first-time landlord?
You have never before rented out a property that you own but would now like to rent out your property. You may have lots of questions about the process. We can help.
Would you like to use your property for a short term let or holiday let?
We are experts in all types and aspects of a buy-to-let mortgage in Scotland and can help you to achieve your goal.
- Do you intend to buy a property under a limited company name?
There are some advantages to a limited company buy-to-let mortgage. Various tax changes in recent years means that it could be beneficial for you to use a limited company buy-to-let mortgage rather than set up a mortgage in your own name.
You would need to set up a company with the specific purpose of a buy-to-let mortgage in Scotland. Lenders would require you to structure the company in a certain way, using specific criteria. For this reason we suggest you contact an expert mortgage advisor (such as The Mortgage Broker) to ensure this is all done correctly.
- Standard let option
This is probably the most common route for renting out your property. A tenancy agreement would be in place to let your property to an individual or family.
- HMO – House of Multiple Occupancy
This is when you let your house to a group of people who are not related. Rooms are on a room-by-room basis and there may even be different rates of rent for each individual. This can involve multiple tenancy agreements for the same property.
A HMO can cover anything from 2 rooms to 20 rooms, plus communal areas. A HMO may also require special licensing from local authorities because of the additional responsibilities involved with multiple tenancies.
- Multiple units
A property which has been converted into apartments is usually considered to be a multi-unit property. It will typically take the form of separate self-contained apartments, each with their own bedroom, bathroom, kitchen etc. A lender will usually expect the landlord to be experienced because of the added complications such properties can involve.
- Do you intend to rent your property to students?
A student let means you rent your house specifically to students. Such rentals are usually set up in university cities and the property will typically have a shared bathroom and kitchen and other facilities.
This may be a larger building and, similar to HMOs, might require a licence from the local authority.
Special Requirements for a Buy-To-Let Mortgage in Scotland
Lenders will usually look at certain criteria in order to be able to offer you a buy-to-let mortgage in Scotland.
- Your age
The minimum age for eligibility is 21, with the usual age range being 21-75 years old.
- Size of your deposit
A minimum deposit of 25% is usually required.
- Your income
Although many lenders will want to see an income of at least £25,000 per year, this is less important than other factors, such as the potential rental income on your property.
- Your credit history
A good credit history is important and will go in your favour as this helps the lender to assess the risk involved in offering you a mortgage.
What Size Deposit Is Required?
As is the case with a standard mortgage, the larger deposit you can provide, the better your buy-to-let mortgage rates will be. Although it depends on the individual lender, a 20% deposit will usually be seen as a minimum requirement. Some banks may require 25% or even 30%. This is to reduce the financial risk to the lender, in the event that you cannot secure regular rent payments from your tenants.
Other Considerations for Your Buy-To-Let Mortgage in Scotland
It’s important to think about all aspects of renting your property out before embarking on this journey, such as:
- The income you will receive from rent payments
Rental income is a critical part of a buy to let mortgage. You also need to take into account what you will do if you have periods when your property is unoccupied and you are not receiving rent. Having a financial contingency should be part of your plan.
- Taxes
Your income tax will be affected by the amount of income you receive from renting out your property. You will also have to pay capital gains tax if you sell your property. Although The Mortgage Broker cannot give you specific advice in this matter, we will be happy to point you in the direction of an expert who can help you in this respect.
- Loan term
Having a plan for what will happen when the term of the loan ends will help you to be prepared when that time comes. In the eventuality of any unforeseen financial problems, you will be able to choose to remortgage or sell your property in advance, thus allowing plenty of time to notify your tenants and make any transitions more easily.
It’s important to think about all aspects of renting your property out before embarking on this journey, such as: Rental income is a critical part of a buy to let mortgage. You also need to take into account what you will do if you have periods when your property is unoccupied and you are not receiving rent. Having a financial contingency should be part of your plan. Your income tax will be affected by the amount of income you receive from renting out your property. You will also have to pay capital gains tax if you sell your property. Although The Mortgage Broker cannot give you specific advice in this matter, we will be happy to point you in the direction of an expert who can help you in this respect. Having a plan for what will happen when the term of the loan ends will help you to be prepared when that time comes. In the eventuality of any unforeseen financial problems, you will be able to choose to remortgage or sell your property in advance, thus allowing plenty of time to notify your tenants and make any transitions more easily.Other Considerations for Your Buy-To-Let Mortgage in Scotland
Rental Income Is Taxable
It is advisable to get professional advice regarding the tax implications of renting out your property. Here at The Mortgage Broker we will be able to provide you with the necessary information you will need to provide to an expert who specialises in property tax.
What Is the Difference Between Buy-To-Let and Let-To-Buy?
When you decide to move out of the home you’re living in at the moment and rent out your house, then that is considered ‘let-to-buy’. This would necessitate changing your mortgage to buy-to-let.
- Consent-to-let
If you don’t need to utilise capital from your house in order to purchase your next house, then you can request a ‘consent-to-let’ from your lender. They will then convert your existing residential mortgage to a ‘let’ one.
- Convert your mortgage to buy-to-let
This is a common choice and involves remortgaging. You would use funds from your property for the deposit and fees and replace your current mortgage with a buy-to-let.
Failing to convert your mortgage if you rent it out could have serious implications with your lender, so it’s important to ensure you are doing everything correctly when you let out your home. We can help you in every aspect of your buy-to-let mortgage in Scotland and help reduce any confusion you may have. Our team is here to help.
