The long-term trend of rising house prices has led many of us to consider making property a key part of our retirement planning. From downsizing after an empty nest to remortgaging to fund lifestyle spending, homeowners enjoy a range of options.

Receiving regular income through ownership of a second property has also been an appealing prospect, with relatively accessible Buy To Let Mortgage deals turning many into landlords.

But with changes to taxes and regulations in addition to rising mortgage rates, is Buy To Let still an attractive option in 2024? Here’s what you need to know.  

Owning a Second Property is Not Guaranteed Profit

It’s important to remember that as the owner of a second property, your investment is someone else’s home. You’ll be responsible for funding and arranging all the maintenance and repairs needed to meet your legal obligations to keep the home in a habitable state.

You might choose to employ a property management agent to oversee the day to day arrangements, so you must also account for their fees, along with the fees of any marketing agent who advertises your home to prospective tenants.

You’ll also be required to pay the mortgage on the property whether or not you have a tenant, which can make a significant dent in your savings. 

Any profit you do make on the property is subject to income tax and must be accounted for through a Self-Assessment tax return.

Purchasing a second property also attracts a higher level of Stamp Duty, known in Scotland as the Land and Buildings Transaction Tax (LBTT), due to the Additional Dwelling Supplement (ADS) if the purchase price is over £40,000. The ADS effectively increases the LBBT rate of an additional property purchase by 6%.

 In Scotland, those higher levels of LBTT are as follows:

• Purchase price of second home £40,000 - £145,000: 6%
• Purchase price of second home £145,000 - £250,000: 8%
• Purchase price of second home £250,000 - £325,000: 11%
• Purchase price of second home £325,000 - £750,000: 16%
• Purchase price of second home over £750,000: 18%

As with all banded taxes, the tax rate shown applies only to the portion of the sum which falls within that band, i.e. a second home purchased for £200,000 would be taxed at 8% of the portion of the £200,000 which falls into the band, so £55,000 of the £200,000 would be taxed at 8%.

Buy To Let Mortgages Differ From Residential Mortgages

Buy To Let Mortgages differ from residential mortgages in a number of ways.

Lenders will use different criteria to establish affordability, recognising the riskier nature of a property business compared to a residential mortgage. You may be expected to show projected rental income of 125% or more of the mortgage repayment.

Additionally, you’ll normally be required to provide 20% - 25% of the purchase price as a deposit for a Buy To Let Mortgage, considerably more than on the residential market, and you may be charged higher interest rates and fees. Fees can sometimes be calculated as percentages of the overall mortgage, as opposed to fixed sums, which can further increase upfront cost.

Finally, many Buy To Let Mortgages are run as interest-only mortgages, as opposed to repayment. While this can mean lower repayments throughout the life of the loan, it means you must be confident you can access or build up enough savings to repay the original sum in full at the end of the deal, unless you plan to extend the mortgage term, re-mortgage your loan or sell the property. 

We Can Help Secure You The Best Buy To Let Mortgage Deal

The appeal of property as a tangible asset, and one with the potential to generate both income and capital gains, means Buy To Let Mortgages are still a popular choice.

Whether you’re looking to secure your first investment property, remortgage an existing deal or expand your property holdings, our expert team can search the entire market to find you the best deal.

Why not contact one of our award-winning advisers for a no-obligation chat on how a Buy To Let Mortgage might work for you?

 

Your home may be repossessed if you do not keep up repayments on your mortgage.