One of the most important considerations when entering or operating within the buy to let world i...
One of the most important considerations when entering or operating within the buy to let world is your Mortgage. Attractive rates are proving a pleasant bonus as low interest rates create excellent offers for Landlords.
There are a multitude of things to consider when contemplating a buy to let mortgage. Firstly you need to know that you will be required to put down a much bigger deposit than if you were looking to take on a standard residential mortgage. A 25% deposit is the minimum though most of the best deals ask for 40% deposits or more. Buy to let mortgage rates function in the same manner as standard mortgage though, they are dependant simply on the risk to the lender. These buy-to-let rates are often higher than residential mortgage rates, as statistics show a higher rate of default on buy to let mortgages, which also results in a more strict overall process. As with many residential loans there are arrangement fee’s to consider as well.
Affordability is a key consideration taken by lenders, they will assess how much you can borrow by looking at the expected rental income, most lenders will insist that this is at least 125% of the yearly mortgage interest payment. So if you are paying back £10,000 a year in mortgage interest, then the lender will look for a minimum rental valuation amounting to £12,500 per annum. There are sometimes other lender criteria to consider, minimum age, often 25, plus a minimum income and maximum total loans amount. You are not often allowed to take out more than three buy-to-let loans, though some of these criteria are very unlikely to hinder the average Landlord.
Then you need to think about what kind of loan you wish to proceed with, some landlords like fixed rate mortgages which allow a more simple budgeting structure where as others may prefer a generally cheaper tracker mortgage, though there can be variations in the monthly costs. You will also need to decide between interest only and repayment mortgages. There are positives and negatives to either; non repayment/interest only mortgages cover only the interest each month and the capital loan is paid off when the property is sold. The main positive here is that your monthly payments are mostly likely to be much lower than with a repayment loan. The downside is that you make no inroads in to the capital debt and you could be venerable if house prices fall.
If you are already the owner of a buy to let property then now is also a very good time to consider re-mortgaging, as stated above the best deals are available to people with higher levels of equity in their portfolio. It is worth noting that with the recent and substantial increases in house values if you have owned you home for a few years or more then there is a strong likelihood that you will benefit from increased value and equity and then potentially a better mortgage rate..
As always we strongly recommend that you seek the advice of a professional. Regulated advice is extremely important especially when making decisions relating to Mortgages and a good Broker should always be sought as your specific circumstance will strongly affect any outcome.
Jonathan Fiducia, Manager of Belvoir Hitchin & Stevenage