Buy-to-Let   Mortgage

Q. How much can I borrow to fund a buy to let property purchase?

A. CCC Finance has access to a variety of schemes that are, in the main, based purely on the rental income that your purchase can be expected to generate (ie we would only need to show minimal proof of your income). The only limit on what you can borrow is that most lenders will require that the expected rent covers between 125 or 130% of the mortgage payments - based on an interest only loan, not repayment, basis. We avoid the lenders poorly trained branch staff and ensure that your application is processed by key personnel at the lenders centralised admin units who understand our requirements and who are sympathetic to your contractor status.

Q. Can I buy a second home rather than a rental property?

A. This has been a huge area for contractors who have wanted to get away from it all at weekends. We have mortgage schemes specially tailored for contractors allowing you to take full advantage of the rise of buy to let mortgages to secure a second home without the need to justify that your own income can support both loans.

Q. I want to move but cant/don’t want to sell my current home

A. 'Let to buy' is the ideal solution if you’re unable to sell your current house (maybe it needs updating to realise its full potential, perhaps its proving slow to sell at the right price or possibly you've lost a buyer but still want to complete your purchase). CCC Finance can arrange a buy to let loan on your current property to release the deposit on your new purchase

Q. I have an existing rental property. Can I release some of the profit made from my house?

A. We can arrange a fees free (ie the new lender pays all costs) re-mortgage to allow you to switch to a lower interest rate and release some of the equity in your rental property/home at the same time. In this way a larger loan may even cost you less than the existing one! Funds can be used for any purpose- a deposit on a further buy to let property, debt consolidation, tax bill, business venture, investment etc

Q. Will I have to pay a higher interest rate than on a residential mortgage?

A. Marginally higher interest rates are the norm with ‘buy to let’ mortgages to account for the perception by the lenders that they are somewhat less secure than a loan secured on the roof over your own head. We should always be able to access schemes at or below base rate +1%.

Q. Do I need a deposit?

A. 25% deposit will secure you options with a very wide range of lenders although 15% deposits are perfectly acceptable and will obviously allow you to potentially build up a property portfolio quicker as you’re using more of the banks money than your own.

Q. How long do I need to have been contracting?

A. We have the ability to arrange a buy to let mortgage within a week of you starting your first contract

Q. How long do I need to have remaining on my contract?

A. As a buy to let loan is based largely on the rental income alone the length of contract is largely academic.

Q. How long does the mortgage process take?

A. Depending on which lender we both agree is best for your circumstances we can have approval of your loan within minutes. Once the survey has been done and the necessary legal searches performed by your solicitor the buying process generally takes 3-4 weeks max

Q. What supporting documentation will I need to provide?

A. We would ordinarily just need proof your existing mortgage is paid up to date and ID. A rental assessment on the new property from a letting agent would be useful in terms of initial underwriting

Q. What costs will I need to find?

A. As we charge no brokers fee to ContractorUK visitors the only costs will be valuation and legal fees and sometimes an arrangement fee to book a particular interest rate. Often we can secure schemes where the lender will pay some or all of these fees for you as an incentive. If you chose to employ a management agent to administer your buy to let and vet tenants etc they will typically charge between 10 and 20% of the rental income

Q. What is a mortgage indemnity and will I have to pay it?

A. Indemnity premiums are a hefty fee that many lenders will charge you if your unable to put down a large enough deposit. This protects them (not you) against your defaulting on the loan and leaving them a debt higher than the value of the house. CCC Finance will always attempt to avoid lenders that charge this costly fee.

Q Will I have to accept costly loyalty clauses to secure a mortgage?

A We pride ourselves on always securing you competitive interest rates whilst avoiding schemes that feature stings in the tail. Too many contractors have been tempted by lenders offering a low headline-grabbing rate only to find that they suffer long periods at higher rates with penalties that are charged if you attempt to break free. We can recommend a competitive selection of schemes that will allow you complete freedom to move your borrowing at any time or at the very least allow that freedom as soon as your current rate expires- allowing you to move onto the next good rate as soon as this one ends.

Q. What will happen to my mortgage rate after the initial scheme expires.

A. Too many people allow inertia to set in once an initially competitive interest rate expires. We will be in touch 2 months before the expiry of any special rate that you may be on so that we can explore the options available if you. We will look at what is on offer from the current lender and compare this with what is available elsewhere in the market. If appropriate we can often arrange a new lender to pay all fees to move your loan across to their schemes. In this way CCC Finance will be on hand to keep an eye on future market conditions and will help to ensure that you secure a competitive interest rates throughout the life of your mortgage

Q. Shall I ‘buy to let’ personally or via my limited company

A. One for your accountants although generally speaking if this is your first property then its likely that holding the investment personally will be the route to take. The lenders that do allow company borrowing would need you to set up a standalone company purely as a vehicle for the property investment rather than tag this venture on the side of your existing one man limited company

Q. If I do go down the company route can I still take out a ‘residential’ mortgage or do I need to look at costly ‘commercial’ borrowing

A. CCC Finance has access to limited company loans at residential rates so you need pay no premium in terms of interest rates to you follow this route.

Q. My main mortgage is a repayment loan. Shall I go interest only or repayment on this new purchase?

A. There are few tax breaks on your main residential property now thanks to successive cuts in tax breaks and the abolition of MIRAS relief. Bizarrely the chancellor will, however, allow you to offset interest paid on your buy to let mortgage against rent received, so reducing the income tax that you pay on the profit. Paradoxically it could be argued that keeping the borrowing high on the rental property for as long as possible via an interest only loan, whilst paying off the residential mortgage more quickly via overpayments could be the most tax efficient way to structure things. Once the main residential loan was settled you could then turn your full attention to the rental mortgage.

Q. Will I need to take out compulsory insurances with my mortgage?

A.You will need to put specialist home insurance in place that allows you to let out the property but more generally we will always try and ensure that there are no hidden shocks when we make a mortgage recommendation to you. We will avoid schemes that insist on you taking out uncompetitive home insurance etc. We also avoid lenders that insist that you must take out life cover although as IFAs we would always recommend that your debt is properly protected and will be happy to provide no obligation advice on this subject.

Buy-to-Let is a joint initiative by the Association of Residential Letting Agents (ARLA), and the mortgage lenders. The scheme is designed to help private individuals to invest in property to let without being penalised by mortgage surcharges or paying commercial rates of interest. Mortgage lenders in the Buy-to Let scheme will take account of rental income likely to be achieved from a property.                   

It's different?
The returns from Letting Property?
What difference does a Letting agent make?
How to Buy-to-let
How are mortgages arranged through Buy-to-Let?
The Dos and Don'ts of Buying to Let
What happens after Buying to Let?
Are there any special conditions?
Can a Buy-to-Let investment be protected?
What other costs should be taken into account?
Tax and allowances

What's so different? Historically, borrowing on income-producing property has been viewed by lenders as a commercial proposition. So, mortgages on property to let, even for private individuals, have attracted higher rates of interest than the standard mortgages offered to owner-occupiers.

In addition, until now, rental income has usually been disallowed when assessing a borrowers ability to meet mortgage payments.

Now, the view of many lenders and all other housing professionals is that growth in the private rented sector must be encouraged. Not only does it lag well behind the private rental sectors of all the other advanced economies, the lack of choice between renting and buying is, in fact, bad for the economy and a contributory factor to the booms and busts of the housing market over the last decades.

But, the change in lending criteria and the lowering of interest rates for private investors has only been made possible by the strong presence of professional, bonded letting agents in the lettings market.              

What are the returns from letting property? Gross returns - the rent received before taking account of the cost of letting - such as management fees, maintenance, service charges ground rents and insurance varies between 7% and 10%. This can be less for very expensive properties.

The average rental return in Britain today hovers around the 10% mark, and capital appreciation is likely to match, if not exceed, inflation for the foreseeable future.

As a rule of thumb, the gross rents should be between 130% and 150% of the monthly mortgage payments.

What difference does a Letting Agent make? Buying a property to let is not the same as buying your own home. Mortgage lenders will want to know that an ARLA member agent has been advising on the selection of properties suitable for letting.

The experienced agent will know the local market, whether there is a demand for say, two-bedroomed flats, or four bedroomed houses, or for properties close to schools or transport links or secluded properties with gardens. Also the agent will know the standard of decoration, furnishing, fixtures and fittings required.

Then there is the selection of well-covenanted tenants who will pay their rent on time and leave the property on time and in a proper state; and there is the management of the tenancy.

Knowing that the management of any inherent risk is in the hands of a professional agent enhances the creditworthiness of Buy-Let propositions put to mortgage lenders.

How to Buy-to-Let Armed with suitable advice from an ARLA letting agent, Buy-to-Let investors can start on a property search; or a letting agent may do this for them, instruct their own sales department or work regularly with the best estate agents in their area.

Once a property has been found, the letting agent will confirm whether or not it has letting potential, the range of the likely rent that can be achieved in current local market conditions and advise on the need - or otherwise -for re-decoration and new fixtures and fittings to attract good tenants and to reduce the risk of lengthy void periods.

How are mortgages arranged through the Buy-to-Let initiative? Broadly, there is little difference between arranging a Buy-to-Let mortgage for investor landlord's and a standard mortgage for owner-occupation. Buy-to-Let mortgages are subject to the usual status checks. Loans can be arranged for terms of between five and 45 years and for up to 85% of the value of the property.

Through the Buy-to-Let initiative, rents achievable from an investment property can be taken into account, provided an ARLA member agent is to be responsible for letting and managing the property.

The Dos and Don'ts of Buying to Let

DO	Think of buying to let as a medium to long term investment.
DO	Seek advice from an ARLA letting agent on local market demands.
DO	Get your sums right. Will the rent cover borrowings and costs, after allowing for void periods?
DO	Decorate, fit out and furnish to high quality standards, especially kitchens and bathrooms, to attract the best tenants and let quickly every time.
DO	Use an ARLA member as your letting agent. They are bonded, hold Professional Indemnity Insurance to required standards, have been in the business for a minimum of two years and are kept up to date with the latest legal and regulatory requirements.
DON'T	Let personal taste cloud your judgement. Be sure the property you choose meets market requirements.
DON'T	Purchase anything with potential maintenance problems like a lot of woodwork or large gardens. It will add nothing to the rental value and cost a lot to keep up.
DON'T	Think that the running of an investment property to let can be left to friends or relatives in your absence. Tenants require a full management service.
DON'T	Use off-the-shelf tenancy agreements from HMSO or law stationers, or forget to issue the right notices or fail to have a proper inventory and condition report made before a tenant moves in. Leave all documentation to a professional agent.
DON'T	Furnish with second hand furniture or cast-off soft furnishings. This will probably contravene the Furniture and Furnishing Regulations.

What happens after Buying to Let An ARLA member will introduce and vet prospective tenants; prepare the tenancy agreements; advise on and arrange inventory and condition reports and changes to utility accounts and Council Tax; collect the rent and pay the balances to the landlord's account.

A letting and property management agent also pays bills on behalf of the landlord and regularly inspects the property, recommending, overseeing and accounting for necessary maintenance, repair and re-decoration.

Are there any special conditions? Generally, lenders will expect landlords to use an ARLA member to let and manage the property and for rental agreements to be drawn up as Assured Shorthold Tenancies or other contracts as appropriate.

Can a Buy-to-Let investment be protected? Insurance cover is now available for rental protection, in the event of a defaulting tenant, and for legal expenses in addition to the normal building and contents insurance.

What other costs should be taken into account? Letting agent's commission and management fees, Insurance (Building/Contents/Rental and Legal Expenses Cover), the costs of keeping the property in a marketable condition, service charges and ground rents - if a leasehold. (The tenant is responsible for such items as utility accounts, Council Tax and TV licence fee etc.)

Tax and allowances Deductions against tax on rents received may be claimed for the costs of maintenance, such as insurance, cleaning, gardening, agent's commission and other reasonable management expenses (but not improvements).

The initial cost of furniture fittings and fixtures is not allowable, but the actual cost of subsequent replacement may be claimed; or, alternatively, a wear and tear allowance of 10% of the rents received may be deductible.

Note: This page is for guidance only. The responsibility for the financial decision to Buy-to-Let can only rest with the investor. Most letting agents will not accept responsibility for the validity of investments, costs incurred or for mortgage arrangements made, although those who are also registered as financial advisers may do otherwise. It should be noted that as with any investment, returns and capital values can go down as well as up; and the investor should be fully aware of the terms and conditions applied by the chosen mortgage lender. Letting agents must present their own written terms of business for letting and managing properties.

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