Purchasing buy-to-let property can be an incredibly lucrative investment for many people, from first-timers to professional landlords. In fact, demand for buy-to-let mortgages in Scotland has increased significantly over the past few years. However, there are a number of considerations to take into account to ensure a successful purchase and letting experience, and to make the most of your investment.
Before making any decisions and putting pen to paper on a buy-to-let mortgage in Scotland, it is very important that you get the right help and advice from a reputable professional—someone who can look at your circumstances in detail and talk you through your options. You must be confident that a buy-to-let mortgage offers the best investment opportunity for your money.
You can generate healthy income and long-term capital gains from a buy-to-let property. However, this depends on the affordability of the mortgage against your potential rental income. An(IFA) will be able to determine the associated costs required to purchase and retain the property—including solicitor fees, valuations, mortgage costs, tax, and maintenance of the property during the course of ownership.
A suitable buy-to-let mortgage is one that you can reasonably afford from the outset, and continue to afford in the long-term—perhaps when the initial fixed-rate period ends, or in the event of having to cover the cost of the mortgage if you face void periods between tenancies. Ideally, to ensure a healthy return on your investment, your monthly rental income should cover 125% of the overall monthly cost of the mortgage and all other costs of maintaining the property.
The Bank of England’s recent, which is the first in 10 years, will also affect your potential rental yields and returns, so a careful analysis of affordability in the short-term and long-term is more pertinent than ever for new buy-to-let investors.
To purchase a buy-to-let property, you require a specific buy-to-let mortgage. Oftentimes, this type of mortgage has a higher interest rate than standard residential mortgages. Most high street banks offer this type of mortgage. A select few lenders even accept applications from borrowers with adverse credit.
It is essential that you select a buy-to-let mortgage if it is your intention to rent out the property rather than live in it yourself. It is considered fraudulent to deliberately select the wrong type of mortgage for a buy-to-let property, which can lead to significant penalties from the lender.
Generally, most lenders require a larger deposit for buy-to-let mortgages than standard residential mortgages. They usually demand 20-25% deposits on buy-to-let mortgages. However, there is some flexibility with certain lenders, so your overall financial circumstances will be taken into account if you have a smaller deposit. Above all, lenders are looking for responsible borrowers with stable and reliable income, sensible spending habits, and manageable financial commitments.
Don’t make the mistake of simply taking out a buy-to-let mortgage with your bank—they may not have the best deal available to you, and their advisors can only recommend their own products. To find the best buy-to-let mortgage deal, it’s important to speak to our friendly and experienced team to find the best options to suit you.
As an independent financial advisor, we are best placed to provide impartial help and guidance as we are not affiliated with any one lender. Instead, The Mortgage Hub have access to the whole of the mortgage market and can make recommendations based on your individual circumstances. We will discuss your options and the best deals available to you, helping you to weigh up the pros and cons of each buy-to-let mortgage.
In Scotland, buy-to-let landlords pay an additional 3%(known as ‘stamp duty’ in England & Wales) when they purchase investment properties. It is crucial that this additional tax is factored in when calculating the affordability of the mortgage and property.
Your rental income will also have to be declared and added to your total annual income, which could push you into a higher personal tax rate. In such instances—if possible—it may be more tax-efficient to take out a joint buy-to-let mortgage with your spouse or partner, rather than applying as a sole applicant.
The Mortgage Hub is an independent mortgage advisor serving the greater Glasgow area. Whether you are planning to buy your very first home and need the right first time buyer mortgage, or are looking to re-mortgage due to a house move or to growing family – we understand your journey is so much more than a financial process, it’s a journey to achieve your dreams, improve your lifestyle and achieve your true potential.