Contractor Mortgages
Mortgages based on hourly/daily rate, we are experts with over 10+ years experience working with contractors.
Property investment isn’t a decision to be rushed. Many believe it to be an easy path to making money, however it is a business in its own entity. You must approach the process with your eyes fully open, not focusing purely on the financial gains associated to it. If your objectives are clear to begin with, you are more likely to get what you seek from your property.
– Plan – know from the offset what your plans are. Will the rental income be used as a regular income, or are you investing in the property for capital growth?
– Conduct Research – find out the laws and rules around buy-to-let mortgages. Carry out some online research, speak with other landlords or a letting agent.
– Get Professional Advice – speak to a Mortgage Adviser and an Accountant to get a full picture on your financial situation and the borrowing options available. It’s important for you to understand the tax implications of owning a rental property.
– Exit Strategy – it is wise to have an exit strategy, should you need to or wish to sell the property.
It is important to be aware of all that a landlord must do – it should rightly be considered as a job itself rather than seeing yourself purely as a property investor.
Consider carefully what you are looking for and choose wisely. A newer property will, in theory, give fewer maintenance issues, yet an older property has much potential for adding value through investment in the right places.
One of the first tasks is to do some research of the local area to get an idea on how much rental income you could expect from the property you are looking to invest in. We recommend speaking with local Agents or looking at comparable properties in close proximity to find this.
It is also worth considering desired occupancy levels – if you are housing more than three separate, unrelated tenants, it will be classed as a ‘House in Multiple Occupancy’, which may incur higher fees and higher interest rates. Additionally, you may find that tenant changes are more frequent.
If you intend to purchase a property which will house over five tenants in one property, then this will need to be registered and be subject to the following conditions:
– The house is suitable and offers comfortable living standards for the number of tenants living there.
– Either yourself, as the private landlord, or the Letting Agents you’ve chosen, need to be ‘fit and proper’. This means a clear criminal record and no history of having previously breached any landlord laws or code of practice.
– You need to send your annual gas safety certificate to the council.
– When requested, you can provide safety certificates for any electrical appliances.
– You install and maintain smoke alarms in the property
One of the more important tasks when renting out a property is finding the right kind of tenants – it could be counterproductive attracting tenants that require a lot of your time and cause you nothing but problems. The location of the property can dictate the types of tenants your property may attract, such as families seeking a property within a catchment area of a school, local to leisure facilities, or students looking for university accommodation.
Letting Agents can assist in finding and vetting prospective tenants, securing references, and performing credit checks, for example – their resource comes at a cost, but it can be money well spent if they avoid costly problems in the long run.
As a landlord, the property is your sole responsibility, and anything that needs repairing or maintaining falls to you to fix. You need to be easily contactable by phone or email, and it will help to have a network of affordable trade contacts who can resolve a variety of challenges at short notice. Be mindful that your responsibility extends to the outside of the property too, including gardens and boundaries such as fences/walls.
Think whether you are up for the challenge of dealing with all types of tenants, even the most difficult ones. Ask yourself if you’re willing to have difficult conversations when needed, for example missed rent, communicating payment rises or issuing eviction notices to your tenants when the time comes. A Letting Agent will be able to handle this for you – again this can be money well spent if this sounds daunting.
Be prepared, and budget for the periods of time when you are not collecting any rent. The housing market can be unpredictable, so it is wise to contingency plan for a period without tenants and income, and how long you can pay any mortgage & rates before having to sell. As qualified Mortgage Professionals, we will assess your income and outgoings to aim to ensure the mortgage is affordable, factoring in periods of time where there is no rent coming in.
It is always recommended to use a qualified Mortgage Adviser to establish what mortgage is most suitable for you. We will listen to understand your circumstances and help to recommend the most suitable mortgage products available to you. We have access to a wide range of lenders, all of whom have different lending criteria.
Broadly speaking, there are typically two main types of payment methods – repayment or interest-only. With a repayment mortgage you would make monthly payments towards both the interest and the capital borrowed, meaning the mortgage balance reduces throughout the mortgage term. Whereas with interest-only mortgages, you would only pay the interest charged by the lender, leaving the actual mortgage balance outstanding, unless you make over payments towards your mortgage.
The majority of buy-to-let investors typically opt for the interest-only mortgage option, which can be useful if intending to sell the property at the end of the mortgage term. After which you would repay the mortgage capital outstanding leaving you with the equity you have in the property. The benefits of interest-only mortgages mean lower monthly payments which can leave more disposable income from the rent to cover any additional costs or provide an income to you.
As with other mortgages, there is a choice on fixed or variable rate products. With fixed rate products, the interest rate and monthly payments remain stable regardless of interest rate fluctuations, and for a landlord this could enable greater stability in managing cash flows. Whereas with variable rate mortgages the interest rate can change depending on the mortgage market or the Bank of England base rate.
It’s important to be aware of the potential costs of purchasing a property with the intention of letting it, below are a few points to consider (but is not limited to):
Product fees apply on some mortgages, and these can be larger than those found on standard residential mortgages. These fees are either required to be paid up front or can be added onto the balance of your mortgage, incurring additional interest.
If the property you’re investing in is over a certain price, you’ll have to pay a lump-sum tax known as Stamp Duty Land Tax (SDLT) in England and Northern Ireland, Land Transaction Tax (LTT) in Wales, or Land Building Transaction Tax (LBTT) in Scotland. The price you’ll pay will vary on the amount you paid for the property. This price will also vary depending on whether you already own a property in the UK. The below rates are different to the standard Stamp Duty rates for residential properties, as you have to pay a surcharge in addition to the standard Stamp Duty rate. Please see below the current Stamp Duty Rates for additional properties:
– A property under £250,000 – you pay 3% Stamp Duty
– A property between £250,001 and £925,000 – you pay 8% Stamp Duty
– A property between £925,001 and £1,500,000 – you pay 13% Stamp Duty
– A property over £1,500,000 – you pay 15% Stamp Duty (Information correct as of September 2022) (Please see the official government site for more accurate / up to date information).
(Please note – we are unable to provide tax / legal advice in this area. Please seek professional advice.)
Solicitors’ fees must be budgeted for, typically incurred for handling the contracts, documentation and the range of searches undertaken as with any other property purchase
(Please note – we are unable to provide tax / legal advice in this area. Please seek professional advice.)
Many lenders will wish to carry out a mortgage valuation which you may have to pay for. You can look to upgrade to a structural survey or a home buyers survey report for an additional cost.
It’s vital to take out adequate insurance on your property, starting with Buildings Insurance as a minimum, and Contents Insurance to cover the furnishings if you’re providing these. You would require a dedicated landlord’s policy, different from standard residential cover. When it comes to insurance, you do not need to cover for any of the tenant’s belongings, it is their responsibility to be insured separately.
There are some specialised landlord’s protection polices available, such as rent insurance or covering legal expenses for evicting tenants, for example, and we would advise a conversation is had about insurance and protection options available alongside arranging the mortgage.
Here are some of the types of insurance you may wish to consider, and what they do (please note this list is not exhaustive list and others may be applicable):
– Landlord Building Insurance – protects against risks to the building that may result in replacement or repair work, e.g. subsidence, fire, burst pipework.
– Landlord Contents Insurance – covers against fixtures and fittings supplied, such as white goods and carpets.
– Portfolio Insurance – ideal if you own five or more properties, allowing you to cover Buildings & Contents across multiple locations under a single policy.
– Home Emergency Cover – can provide emergency assistance for landlords, including access to plumbing, heating, roofing, drains, sewer blockages and locksmiths amongst other services.
– Rent Guarantee – there to cover for when tenants cannot make rent payments, protecting you from any losses as and when they occur.
– Legal Expenses Cover – cover to assist with Legal Protection costs for property damage, recovering rent arrears, repossession, eviction, or prosecution defence costs.
Income Tax and Capital Gains Tax must be budgeted for, we recommend that you seek Independent Tax and Legal Advice as Connely Roberts are not able to offer tax advice. When you come to sell the property, if you have made a profit (capital gain) then you’re liable to be taxed on the profit, not the total amount you receive.
Letting Agents offer a variety of support and can pay for themselves when it comes to handling more troublesome tenants. They can offer rent guarantees, tenant replacement and tenant moving out fees. Some agents also offer ‘fully managed’ services where they can arrange for any repair work to be completed with their own contractors.
It is wise to also budget for the worst-case scenario of having to evict tenants, and any resulting legal fees. Talk to Solicitors and familiarise yourself with the potential costs here, and ensure you have funds set aside as contingency just in case.
The cost of repairs and maintenance all depends upon how ‘hands on’ you are prepared to be. If you are experienced in this field, you may wish to do it all yourself and carry out the maintenance work when required. If you don’t feel the inclination, then it is advisable to find some trusted contacts you can call upon on a regular basis and negotiate some preferential rates if possible. Allocate a realistic budget for ongoing repairs.
Checks must be carried out annually, making sure any gas equipment is safely installed and maintained. You must have a copy of the gas safety record before, or within 28 days or a tenant moving into your property.
Landlords must carry out risk assessments for Legionnaires Disease, a lung infection caused by inhaling contaminated water droplets. It is advisable to familiarise yourself with the periodic checks required and responsibilities in this area.
Service charges and ground rents can be payable by the landlord and not the tenants. You also need to consider the length of lease remaining as this could need extending during your ownership.
Fully furnished properties may be more attractive to prospective tenants, however if they are unfurnished then it can save money on replacing items due to wear and tear.
Generally provided across both furnished and unfurnished properties, landlords provide white goods, it is prudent to consider the cost of replacements and repairs, and budget this in from the outset.
When looking at potential buy-to-let investment locations, try to be as objective as you can. Ignore emotions and find a property that can meet a set of defined criteria, to allow you to meet your business goals.
Here are some crucial questions you may wish to consider:
– Who do you want to rent to?
– How long might it take to secure tenants around this area?
– What is the rental market in the area like? Is it growing or declining?
– Is there the potential to build in capital growth?
– Will the rent you receive cover your costs?
– Can you make improvements to the property to increase rental income or capital growth?
– Have you looked at any forecasts for property growth in the area?
– Should you rent privately or use a Letting Agent?
Firstly, we recommend sitting down and running through your finances to compare the cost you would pay for the property, against the likely rent you can collect from tenants. This will help you identify if the investment is likely to be profitable, and over how many years, which is useful to take into account when looking at obtaining a buy-to-let mortgage.
If you are looking to purchase a Buy to Let property using a mortgage, the lenders will require a larger deposit compared to residential mortgages. Typically, this would be 25% of the property value, however there may be options for smaller deposits, although the number of lenders will reduce, and the interest rates tend to be higher.
A Mortgage Adviser could talk you through this so you have a clear idea of whether you can comfortably afford the mortgage on your own. When you’re ready to apply for your buy-to-let mortgage, we will arrange an appointment at a convenient time that suits you.
We are ready to share our knowledge and experience to help find you the most suitable deals that meet your needs and circumstances. We know that no two mortgages are the same, and we’ll aim to listen to your needs and recommend the most appropriate products.
Searching for the right mortgage product yourself can be time-consuming, but with our help, we can search thousands of mortgages. We have regular contact with a wide range of lenders, and with our help, you won’t necessarily need to search or contact each individual lender to compare mortgage terms and rates, we will help to deal with this for you.
We will explain the process in order to help you make a start on your buy-to-let journey. We will go through details of the different fees involved, what they are for, and take them into account when finding the right mortgage product for you. We are also passionate about protecting your buy-to-let property, so our Advisers will recommend a range of protection policies available to suit your circumstances.
We have a duty of care for you too, and we are keen to point out that your home may be repossessed if you do not keep up repayments on your mortgage.
If you are looking to take your first step as a Buy to Let investor visit our Buy to Let page or contact us to find out more.
The Financial Conduct Authority do not regulate some forms of Buy to Lets. Your property may be repossessed if you do not keep up repayments on your mortgage.
We typically charge a broker fee of £495, however the amount we charge can depend on your individual circumstances.
We have made reference to investments in this guide, however please note that we do not provide legal / tax advice. Please ensure to seek independent tax / legal advice if this is required.
Mortgages based on hourly/daily rate, we are experts with over 10+ years experience working with contractors.
We are here to help you take your first step onto the property ladder, with deposit options as low as 5%.
Is your remortgage due soon? We have access to over 140 lenders and have access to thousands of mortgage products.
We offer a range of Buy to Let mortgages to new and existing landlords, including HMO and Limited Company applications.