It’s been a long time since I have had anything significant to write about in terms of new products, but this morning Kensington Mortgages have announced what must be one of the most significant signs to date that mortgage lending is returning to some sense of normality.
Their new buy to let product range is available up to 85% loan to value even for first time landlords, and although arrangement fee’s on the 85% product are 2.5% it is still a major step forward for buy to let landlords particularly as it is available on up to 3 properties with an interest rate of 5.99% fixed for two years and with a portfolio maximum of £1 Million or 3 properties on the product.
Rental coverage requirements are also lower than the competition with a rental yield requirement of 120% coverage at the pay rate required and this should help to ensure that the products are viable . The range also now allows first time landlords into the market at 80% and at this loan to value there is a flat fee product option as well as a 2.5% fee which will work well for those borrowers with higher property values.
The products are also available for both purchase and remortgage however they are only available for properties in England and Wales, have a minimum income requirement of £25,000 or £30,000 above 75% loan to value.
For more information on any of these products please call one of our mortgage advisors on 0845 4594490.
Capital gains tax is levied on gains made on certain non exempt sales of assets at a current rate of 18%. Your main residence is effectively exempt from Capital Gains Tax through tax relief, however any second home or investment property will become liable for Capital Gains Tax from the date at which it is no longer your main home.
So if you bought a property as a second home or buy to let then it is liable from the date of purchase, whereas if you bought a property as your main home and subsequently moved to a new property letting the old one, then the old property becomes liable to Capital Gains Tax from the date of transfer however there is a 36 Month leeway given so effectively you owe Capital Gains tax on the property from 36 Months after its transfer to a buy to let.
Losses and expenses can be set off against any gain, so keep a record of all your costs as a landlord including maintenance bills etc but not including your mortgage costs (mortgage interest is offset against income tax). This means it is also worth having some form of valuation on the property at or around its 36 month as a let property to establish the value of the asset at its date of becoming liable.
You also have a personal Capital Gains Tax threshold of £10,100 currently below which no tax is due, so if you are married or in a civil partnership having the property held on a joint tenancy or tenancy in common basis will allow you to use both your tax thresholds up to £20,200. To work out any tax owed take the sale value of the asset, less any costs and applicable tax threshold and the value at its date of becoming liable the multiply by 18%.
So if you let a property worth £120K in 2005 and sold it this year for £150K with costs in the four years of £3k then you would owe £30K less £3K, less £10,100 which = £16,900 taxable gain then multiply £16,9K by 18% giving tax due of £3,042. In the same situation for a married couple where the property was held in joint names you would instead take the gain of £30K less £3K costs, and £20,200 tax exemption giving £4,800 taxable and tax owed of £864.
Capital Gains Tax is a complex area and there are other factors which may affect your tax liability, and it should be remembered that taxation policy can change in each government budget. For more information or to speak to a mortgage broker call 08454594490. Seek independent taxation advice for an exact analysis of your tax liability and guidance on tax mitigation.
Question – I am intending to let my property which has a residential mortgage on it, what should I do and is this ok?
Firstly it is a typical condition of almost all residential mortgage contracts that the property should not be let without the consent of the lender. So you should always speak to your lender first and see what they say.
Most lenders will be relatively helpful with this as there are numerous reasons people choose to let what was once their home and it’s a very common occurrence. They may want to change the mortgage contract to a buy to let type or in some circumstances change nothing until the current mortgage is out of its initial term.
A lender is unlikely to give you a positive response though if you only entered into your mortgage contract very recently. If they did then very few people would bother paying the higher interest on a buy to let mortgage and would simply take a residential mortgage and switch it a week later.
You will also need to look at your buildings and contents insurance as it will very likely invalidate this policy if you are not the main occupant. Tenants are more likely to ruin a property than the owner so your home insurance may be a little more expensive, and last but not least you need to make sure you comply with all the regulations around being a landlord as regards gas inspections and using a secure tenant’s deposit scheme to avoid any litigation in the future.
As usual if your need further information about this call 0845 4594490 to a speak to a mortgage advisor about your own circumstances.
Question; I want to buy a property and let a room or rooms out, is this a Buy to Let?
In short probably not if you or one of your direct family members occupy 40% or more of the property this will be classed legally as a residential mortgage.
The exception would be where you are buying a block of flats or converting a property to flats and your personal flat is less than 40% of the buildings total floorspace.
If they aren’t flats then you will occupy the public rooms too so unless your property has a very large number of bedrooms it would usually mean you occupy more than 40%.
If you are thinking of doing this however it is common for sub letting to be disallowed as a condition on a residential mortgage contract so always consult a mortgage advisor about the legal implications.