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Buy to Let Scotland

The key information you need to know about buy to let in Scotland.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 9th July 2019 *

We receive lots of enquiries about Buy to Let mortgages in Scotland, often from buyers who  are new to the Buy to Let sector.

With changes to tax relief imposed on Buy to Let landlords in 2015, many are unsure about what the best options are for them and how they can still make a profit.

Buy to Let mortgages in Scotland needn’t be complicated, though.

The advisors we work with have access to a range of lenders in Scotland and can take you through the process from start to end, even if you’ve had bad credit.

To give you all the information you need about Buy to Let mortgages in Scotland, we’ve created this handy guide below which covers:

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Are the rules different when purchasing a BTL in Scotland?

Yes. If you’re a landlord in England or Wales you must check that your tenants can legally rent the property. This is known as ‘Right to Rent,’ but this does not apply to landlords in Scotland.

In Scotland, before you can let a property you must register with the local council where your let property is located.

If you register before you rent out your property this will ensure you meet the minimum legal requirements.

Joint owners (anyone else who's named on the title deeds) need to register too, but they won't be charged.

Land and Building Transaction Tax

In England, Stamp Duty Land Tax applies to properties that cost more than £125,000, however in Scotland, this charge does not apply.

Instead, you’ll pay Land and Buildings Transaction Tax when you buy a property.

The other differences between Stamp Duty Land Tax in Scotland and the UK include:

  • Payments are made to Revenue Scotland and not the HMRC
  • Scotland uses different price purchase bands to those in the rest of the UK to determine the Land and Buildings Transaction Tax rates

As of April 2016, an extra 3% of the purchase price of the property must be paid on top of the existing Land and Buildings Transaction Tax if you purchase a second property or a Buy to Let in Scotland.

The Scottish system works in the following way:

LBTT percentage rate from April 2016
Price Bands (£) LBTT Standard Rate % BTL / 2nd Home Rate (%)
Up to £145,000 0% 3%
£145,001 - £250,000 2% 5%
£250,001 - £325,000 5% 8%
£325,001 - £750,000 10% 13%
£750,000 12% 15%

Should you apply for a BTL mortgage in Scotland as a limited company?

Many landlords choose to apply for a buy to let mortgage for a limited company. If you’re considering this as an option, you will have more choice of lenders if you set the company up as a special purpose vehicle SPV. If you already have a limited trading company you can purchase BTLs in that business, but there will likely be less lenders to approach in this area.

As well as tax relief benefits, having an SPV or Limited Company BTL separates any personal property (such as your own home) from your Buy to Let portfolio.

Some lenders will also expect personal guarantees from the directors if you’re purchasing through a Ltd company or an SPV.

Alternatively, we can put you in touch with an SPV and limited company expert who can inform you of any changes to Buy to Let in Scotland and how this could affect your mortgage.

Where are the best Buy to Let areas in Scotland?

While commuter towns around Edinburgh, and the capital itself, remain some of the most popular Buy to Let locations, they can be very expensive. As can areas in and around other major cities like Glasgow.

Even if you’re an investor who has enough money to afford a Buy to Let property in a bigger city, it doesn’t necessarily mean that you’ll see a bigger return on your investment.

You’ll be able to charge a higher rate of rent but this might not always outweigh the costs of the initial purchase. It might be more viable to spread the deposit over two smaller properties and generate a superior return.

Buy to Let investment opportunities in Scotland

It could work out more profitable to own a Buy to Let property in a smaller town or area where the property is cheaper to buy. As well as renting it out, you could also make a profit from the sale of the property if it increases in value.

This is known as ‘capital appreciation’ and it is why many Buy to Let landlords opt for properties in ‘up and coming areas’ as these can often turn out to be a good investment opportunity.

This could be a lot more affordable, especially if you’re a first time buyer and this is your first Buy to Let. A cheaper property will need a smaller mortgage, meaning less financial risk to you, and with some lenders, this could make it easier to get approved.

How to compare the best value Buy to Let areas

When deciding on where in Scotland you want to purchase a Buy to Let property, it can be really helpful to work out the rental yield.

To do this you need to decide on how much rent you would charge per year (you can look at other properties in the area on letting agency websites to compare rental fees.)

One you have this figure, divide it by the market price of the property and multiply by 100 to give you your rental yield percentage. The higher the percentage, the better value the property.

For example, if you were to charge £750pm in rent for a property worth £140,000, you would use the below calculation:

Rent  9000/ property value (£140,000) = 0.064

(x 100) = 6.4%

What is a good rental yield for a Scottish property?

A Buy to Let property should ideally have a rental yield of 7% or more to ensure that you can make a profit after paying your mortgage payments, insurances and running costs (if you are planning to include those within your rent fees.)

What deposit will you need for a Buy to Let mortgage in Scotland?

Buy to Let mortgages are seen as more of a risk for lenders as the payments for your mortgage often rely heavily on your ability to get tenants and also the likelihood that those tenants will pay their rent in full and on time.

Because of this, they do often require a higher deposit. In the UK, including Scotland, the minimum deposit for a Buy to Let mortgage is usually 25% of the property's value. However, this varies as some lenders will ask for a 20% - 40% deposit, depending on your circumstances.

To truly understand how much deposit you may need with a specific lender, talk to a mortgage advisor who can take the time to look at your situation, find lenders who will accept you and then calculate your deposit size.

How do lenders calculate your affordability for a Buy to Let?

The majority of lenders have affordability checks which could include questions about your income, age and experience of being a landlord. Typically Buy to Let lenders will require your rental income to be 25–30% higher than your mortgage payment.

For a landlord with monthly mortgage payments of £500, this would mean that he needs to charge at least £625 a month to his tenants.

It can be helpful to seek advice from a Buy to Let mortgage expert before applying. They’ll have up to date knowledge about the lenders most likely to approve you and will know about their varying criteria, and the ones we work with can introduce you to the best mortgage provider based on your needs and circumstances.

This allows them to advise you on what to expect in terms of mortgage payments, fees and rent charges.

Contact a member of our team here for more information.

Will bad credit affect getting a mortgage for a BTL in Scotland?

We have helped lots of homeowners get a BTL mortgage in Scotland with bad credit, even in instances where they have been rejected by another lender.

Every lender has their own set of criteria when it comes to deciding whether or not that can lend to someone, so just because one lender has rejected you or asked for a larger deposit, it doesn’t necessarily mean another will take the same stance.

Some lenders will strictly not accept borrowers with credit issues whereas others are happy to consider someone with recent and severe problems, in the right circumstances.

For more information on this see our bad credit mortgages section.

Alternatively, make an enquiry and we’ll refer you to one of the experts for the right advice.

Should I get advice before applying for a Buy to Let property in Scotland?

The brokers we work arrange Buy to Let mortgages all the time and have relationships with high-street and specialist lenders including The Royal Bank of Scotland.

Finding the right lender can save you money and can also take the hassle out of moving as they will handle all negotiations and paper work for you.

We only work with brokers who are:

  • Whole of market
  • OMA accredited advisors
  • Have passed a LIBF Training course
  • Are experts on buy to let and the Scottish market

Speak to BTL expert about mortgages in Scotland today

If you have questions about the Buy to Let scheme in Scotland or want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 9th July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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