A buy to let mortgage is slightly different to a standard residential mortgage because it is formally seen as an investment mortgage. This is the reason why lenders consider the rental yield of the property as the primary source of income. Similar to a residential property, affordability still needs to be considered but the rental income usually needs to be more than the monthly mortgage commitment.
A minimum of income of £25,000 per annum is a typical requirement by most lenders but there are lenders out there that may consider less. In assessing a buy to let mortgage application a lender will look for a rental income of 125% of the monthly interest payment of the loan.Due to a buy let mortgage being for investment purposes, you can chose to have it on either repayment or interest only basis.
Since the recession hit, the demand of the rental sector has experienced a considerable climb thus the entry to the market for first time landlords is continually changing. Nonetheless, an investment property could prove to see a lucrative return for the right person.
Due to the increasing demand of the market, finding the right buy to let mortgage recently can be complex, why not speak to one of our experts to guide you on your investment ventures and show you how to maximise your return. We can plan your growing portfolio whether it be your 10th buy to let or your 1st, for both now and the future.
6 Top Tips to Your Buy to Let
1. Do you have penalties?
If you are on a fixed rate or a discounted product of some sort, the likelihood is that you will have to pay an Early Repayment Charge before you can change your mortgage. However, if you are paying your lender’s Standard Variable Rate (SVR) an Early Repayment Charge (ERC) will probably not apply. It’s important you check these with your lender before you remortgage.
2. Shop around
It pays to be aware of exactly what type of deals are available at any given time, and at what rates. Shopping around thoroughly is the only way you can be fully informed. Be aware, there are thousands of mortgage products available not just your banks on the high street.The internet is a great starting point for doing your research, with plenty of price comparison websites offering information on the interest rates available. However, be aware that they may not tell the whole story and some intermediaries do have exclusive products so discussing these further with an experienced mortgage adviser may improve your chances on securing the best deal.
3. Take a medium- to long-term view
Most sensible landlords these days invest in property for the medium – to long-term, so it can make sense to look for a corresponding mortgage product. This may mean paying a slightly higher interest rate than the one you are currently on, for example if you wish to lock into the security of a fixed rate, rather than leaving your repayments at the mercy of variable rates.
4. Weigh up the rate vs the fee
Most lenders will offer a choice of higher fee, lower rate, or vice versa. Most landlords opt to absorb the cost of a high fee, as a low rate going forward minimises your monthly repayments, which can be tax-efficient and good for cash flow.
5. Choose The Right Lender
Different lenders offer different levels of service to different types of buy-to-let borrower. Some favour landlords with smaller portfolios while other offer an enhanced service to their ‘professional’ landlords with a lot of properties. It can be worth paying a slightly higher interest rate for greater access to finance or better service. It is important that you weigh up the pros and cons of holding all of your mortgages with one lender, if you have more than one buy-to-let mortgage. It could make sense to remortgage them all wholesale to a new provider, who will then have a 360 degree understanding of your investments. On the other hand, it might suit you to spread your borrowing about by remortgaging one or two to a new lender, in order to secure the best available deals for each individual property and equity.
6. Use a mortgage adviser
A good adviser can and will scour the market to find the most suitable deal for you, with the most beneficial interest rate/fee combination for your needs. In fact, using an adviser you trust means you could in theory skip most of these tips, as they will do the work for you. At Safe Finance are policy is honesty; rest assured we only provide advice based on your individual circumstances.
There is no guarantee that you will be able to arrange a continuous let of the property, or that the rental income will always be sufficient to meet the cost of the mortgage. If you are paying estate agents to let the property for you they may charge you additional fees to do so.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Most buy to let mortgages are not regulated by the Financial Conduct Authority