Buy to Let and Furnished Holiday Let Mortgages

Buy to let mortgages are exactly what the title states, you take on a mortgage to buy a property to let it out rather than live in it personally.  These mortgages are commonly available as follows:

Assured Shorthold Tenancy (AST) Buy to Let (BTL)

• Usually for a fixed rental term, 6 months, 1 year or 2 years and then a rolling contract.
• ASTs will soon be replaced by opened ended tenancy agreements under the Renters Reform Bill 2024 soon to become law.
• Deposit required usually of 25% of the purchase price with a loan to value of 75%.
• Some lenders will want to check your own personal affordability i.e., excess income over expenses to cover the loan in periods of unoccupancy.
• Most lenders will lend based upon the potential rental income as assessed by the valuer/surveyor.  Then will then usually required a ‘rental cover of around 140% of the interest payments on the mortgage.   E.g., if the mortgage interest payments due will be £800pm, then the lender would want the market rent to be a minimum of £1,120pm.
• Lenders will usually expect you to already have your own home i.e., you cannot and will not be moving into your buy to let property as your main home or a 2^nd home. 
• If you want a 2^nd home mortgage, then many lenders do offer these, but you cannot then let your property as a holiday let or rental property.
• Available for UK residents but also some availability for UK expat non-residents as well as non-resident foreign nationals.

Things to Watch Out For with BTL

• 3% additional stamp duty surcharge for UK residents.
• The above 3% stamp duty surcharge plus an additional 2% for non-UK residents.
• Mortgage/finance interest costs can only be offset against rental income profits at basic rate tax (currently 20%) even for higher rate (40%) and additional rate (45%) taxpayers.
• Fire Safety Regulations on apartments (after Grenfell) to ensure the apartment block is safe e.g.  fire doors, escape and evacuation routes etc.
• Energy Performance Certificates: whilst the government has now ‘shelved’ minimum EPC requirements for let properties, we are sure this will return so you should plan for minimum EPC ratings of C or above.
• Annual gas safety testing and certificate.
• 5 yearly electrical safety tests and certificate.
• Landlord insurance.
• Capital gains tax on sale at 18% for taxable gains within the basic rate tax band and 28% for taxable gains in the higher rate tax band.

Furnished Holiday Lets (FHLs)

• Usually lending on the same terms as buy to let with a 25% deposit.
• Rental cover based upon expected holiday let income but with valuer/surveyor’s professional assumption of the number of ‘voids’ i.e., periods when the holiday let is empty.
• Currently, the property must be available for holiday let for a minimum of 210 days per annum and actually be let for at least 105 days meaning there is time for you to use it yourself.
• FHL rules end in April 2025: 
• Allowing you to write off furniture depreciation costs as well as being able to claim expenses relief on interest payments at your highest income tax rate will stop.
• Council taxes may need to be paid as FHLs can currently register for Business Rates and claim an exception under small business rates rules will stop.
• Capital gains tax rules for ‘business’ assets are much lower at 10% but this will change to 18%/28% as for normal buy to lets when FHL rules will stop.

Maximum Number of Mortgaged Investment Properties

• Most lenders will only allow a maximum of 3 mortgaged investment properties with them (or even with other lenders).
• If you want 4 or more properties with a mortgage on them, you will likely need to switch to a Property Portfolio Mortgage rather than individual buy to let mortgages.

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