A COMBINATION of low interest rates and a desire for physical assets seems to have given the buy-to-let mortgage market a lift in recent months.
The number of mortgage deals has increased and with the competition a lowering of interest rates is bringing in more first time landlords.
Remember that the rent after any qualifying deductions will add to your income and become taxable each year plus when you come to sell there may well be some capital gains tax to pay. Because of the tax considerations, you should also think carefully about whose name(s) the property is purchased in.
Almost all lenders require a minimum income and so buying the second property in a non-working partners name may be tricky.
The vast majority of buy-to-let mortgages are currently established on an interest only basis, partly I guess because only this element of the repayment can be offset against rental income before income tax is applied. Equally, it will of course minimise the outgoings and maximise the pocketed yield.
You will of course have to repay the capital at the end of the mortgage term and a suitable plan should be in place, not leaving the sale of the property, for example, until a month before maturity as you may not find a buyer with plenty of cash just waiting to complete a purchase!
Dominic O’Brien is a Chartered Financial Planner and Director of Jamieson Christie Wealth Management Ltd. Please remember that the information given is for informational purposes only and is not intended to give or imply advice of any kind. Limits, terms and conditions may apply to one or more of the areas mentioned above. The value of investments and any income from them may fall as well as rise and you may not get back what you invested. The above is based on our understanding of the regulatory position as at May 2013.