‘Funding Buy to Let Purchases’ – The National Property Showcase event is taking place today. If you are unable to attend, don’t worry. We will be issuing live blog reports throughout the day to update you on all the advice, thoughts and discussions emerging from today’s industry seminars.
The first set of seminars is entitled ‘All you Need to Know about Buy to Let’. Buy to let is changing the face of the housing market as we know it in the UK and tenant demand is continually rising with the time it takes to let a property steadily reducing.
We kick off with ‘Funding Buy to Let Purchases’ – Mike Allardyce, Regional Director, Countrywide Mortgage Services.
The Buy to Let Lending Market
As things stand at present there is currently an excellent lending market within the sector. However, some lenders are keener than others to issue buy to let loans and have a greater lending capacity. If you are an individual wishing to source a buy to let mortgage, using a broker ensures funds are secured on suitable terms. Your broker will undertake an in-depth analysis of your circumstances and objectives and take into account several key components when recommending suitable buy to let mortgage products. The vast majority of buy to let loans are introduced via intermediaries.
In terms of some of the detail with regards to your chance of borrowing for a buy to let purchase you need to consider the following:
Firstly, your credit history is very important, in many cases it is more important than your personal income level. Those earning £25,000 per year often find that income isn’t a barrier to gaining buy to let mortgage finance and is now quite common.
The minimum deposit required for most buy to let loans is around 20% but generally at least 25% advisable. The main criteria measure for any buy to let mortgage decision is the monthly rental value of the rental property you wish to buy. As a general rule of thumb, rent must usually be at least 125% of the mortgage cost.
Rates and Finer Details
As for mortgage rates themselves, they are highly dependent on loan to value ratios and product fees. Typical buy to let interest rates will be higher than residential (like for like). Another factor that will be considered will be risk, i.e. on-going condition of property (owner occupiers are more likely to look after a property than a tenant), defaulted payments etc.
The best buy to let tracker rate currently available is 2.94% and the best fixed rate is currently 3.49%.
If you are considering a buy to let investment the property you wish to buy needs to in a rentable condition. However, some lenders will lend on properties that require a light refurbishment. Property types to avoid or consider more carefully before purchase include; freehold flats, small studio apartments or premises above takeaways. Non standard construction will also increase costs.
Buy to let loans are not regulated and the landlord’s experience in the market will impact on the lenders attitude and approach to lending – e.g. portfolio landlords with lots of experience may be a more attractive lending option to mortgage providers. Generally the property should be vacant on completion and lenders prefer 6+ month Assured Shorthold Tenancies. Only a handful of Lenders allow HMOs (houses of multiple occupancy) and restrictions often include renting to family members and the property being sub-let. There are also some restrictions on student lets. Your broker will guide you through the BTL mortgage maze. There is a great deal of product choice in the buy to let sector so it is vital you speak to a broker to secure the best product for your circumstances.
Related Mortgage Costs
There are a number of related costs to consider when financing a buy to let purchase. Buildings insurance will be compulsory for freehold properties, whilst public liability insurance is usually factored into buildings insurance. Optional landlord and/or tenant contents cover is available and additional insurances such as rent dispute & rent guarantee insurance are becoming increasingly popular. Life, Critical illness and income protection cover should be a serious consideration to protect your investment.
Using your Cash Wisely
Many new buy to let investors assume that cash is king, however this is rarely the case. It is wise to investigate the way in which cash can be used very effectively to ‘gear’ a buy to let investment. In essence why buy one property for £150,000 cash when you could divide up your funds, spread your risk and buy three properties at £150,000 with a good deposit on each ? This method of leveraging maximum return on your investment is becoming increasingly popular and lenders welcome this approach as it helps manage risk.
If you are interested in finding out more about your buy to let investment options visit our buy to let mortgage pageon Propertywide.