Mortgage Selection Is A Key To Better Buy

By Author: kk
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For investors in UK buy to let properties, the sort of mortgage that they take out can have considerable implications on how much tax they will pay, both over the life of the investment and only a monthly basis. This can significantly impact total returns from buy to let investing. Unfortunately there is no single choice of mortgage that is right for every property investment strategy so prospective landlords should investigate their options with great care.

The first choice to make is between an interest only mortgage and one that includes repayment of the principal amount owed. Traditionally most buy to let mortgages have been interest only ones. This is because the interest paid can be deducted from the rent received for income tax purposes. Thus many landlords have wished to minimize tax by not reducing the loan amount. The main tax that would then be payable is capital gains but this is levied at a lower rate than income tax. The advantage becomes particularly pronounced for people with high incomes as they pay tax at a much higher marginal rate of business investor

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... disadvantage of this sort of mortgage is that during times of stressed financial markets, landlords may find their loan to value ratio becomes easily stretched. This may make it difficult if not impossible to remortgage with another provider and also means they may end up paying a punitive risk-adjusted rate.