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Making the very most from your buy to let investment will depend a great deal on getting the right buy to let mortgage and involve having access to the whole market and the deals available. When we say the whole market, we’re talking about going off the beaten track to find deals that you wouldn’t find on the high street.
There has been something of a polar shift in the buy to let property market in recent years, with all kinds of people, from all walks of life becoming involved. The good news is that there are mortgage lenders out there that are able to cater for most people, whatever their background and financial position.
In order to help you navigate your way through what can be a minefield of available options, we now take you through some of the finer details that will have an influence on whether your application is successful or otherwise.
Ok, so first we look at something pretty fundamental to your application – your credit score. Whilst the traditional principle of a good score being extremely helpful in getting approved for a mortgage still applies, having a less than perfect credit file isn’t something that will necessarily stop you in your tracks. Sure, it’s tougher getting approved for everyone since 2009, but there are specialist lenders out there who will look at you holistically, taking every aspect of your financial health into account.
That said, what a bad credit score may stop you from getting, are the very best deals on the buy to let mortgage market, so anything you can do to improve it will help. If you’d like to know more about how to do this, take a look at our improving your credit score page. It may seem like a relatively minor point, but it can really affect the rate you’re offered and for every percentage point higher you go, more of your profit margin is being eaten up.
Another cornerstone of your buy to let mortgage application is the affordability, as it’s an aspect that is given possibly the most weight out of all the criteria you’ll have to meet. Mortgage companies are in the business of profit and absolutely don’t want to have to repossess the house back from you, so you’ll have to demonstrate that you can afford to buy your chosen property and run it as a landlord.
Strictness will vary from lender to lender, with some requiring a minimum salary level for the applicant and others asking nothing more than the rent being equal to or greater than the mortgage payments. Whichever way you slice it, you’ll have to show your workings out in terms of numbers, so make sure yours add up!
Typically speaking, the most you’ll be able to borrow on a buy to let basis will be either 4 times your yearly salary or worked out using an equation of the rent needing to cover the mortgage payments in full, plus another 25%. Finding a lender who will be willing to let you borrow the most will require you to find one that best suits your particular circumstances. This normally means working with a broker or some other kind of mortgage professional.
To clarify what we mean by that, it could be that your income is zero and you have found a property that is expected to earn a significant sum per month in rental over and above the monthly mortgage payments. In this instance, you’d want to be looking for a lender that assesses you on the rental income, not your salary.
Since the trauma that was the last credit crunch, loan to value limits on properties has been steadily increasing, but the days of high street lenders offering 90-100% loan to value mortgages are most definitely a thing of the past. In order to get anywhere close to that, you’ll need to be speaking to someone with access to specialist lenders.
When talking about BTL rates, they’re typically the same as those for residential properties with an incentivised rate with a tie in period at the beginning, after which you’ll move to a variable rate standard and be free to move to another lender if required. Much in the same way people search around for the best prices for gas and electric, other lenders will offer fixed rate, capped, discounted and tracker rates to encourage people to move their mortgage to them. It’s a big step, so make sure that you’ve read all the small print before agreeing to anything.
When you’re shopping around for a great BTL mortgage rate, you have to be aware of the fact that the associated fees can vary greatly from company to company. Overall, they will be a little higher than those you’ll encounter when arranging a residential mortgage, so you must remember to factor this into your financial calculations.
If you see a mortgage rate that seems to good to be true, it could be that the headline deal is only able to be offered because there’s a nasty surprise waiting for you later on in the form of a gigantic arrangement fee. You could do your sums and find out that whilst your rate might be better, the fees could make the overall cost higher. The right move will depend largely on the property you’re buying and your own set of circumstances.
There are no hard and fast rules that apply when choosing a BTL property, as it’s possible get approved for a wide range of size and types of home. However, the exact details of the structure and location could have a bearing on the final decision of whether to approve it or not. For example, if you plan to buy a home that’s in dire need of renovation, it could be that some lenders aren’t interested. The more work that needs doing to the property before you see a return, the more likely it is that you’ll have to seek the help of a specialist lender.
If the BTL property you’re planning to buy is defined as an HMO, you’ll absolutely need to mention this to your mortgage lender, as the rules that apply differ from standard residential homes. Again, there are a number of mortgage companies that cater for this kind of arrangement and they will usually offer products that have higher fees and rates and require you to put down a larger deposit to secure it.
If you try and pull the wool over the eyes of the mortgage company, the subterfuge won’t last long, because as soon as the house is surveyed, they’ll know your application is incorrect. Again, a specialist lender could be your best bet.
Whilst it is possible for any adult over 18 to apply for a BTL mortgage, there are lenders out there who will place a limit on the upper end of the scale. If the mortgage you’re applying for takes you well into retirement, this will set certain alarm bells ringing for most lenders, as your ability to repay the mortgage could be called into question. Like many others, restrictions like these don’t apply with every lender, but you may be best served speaking to a specialist lender.
If you’ve never owned your home before, there are buy to let mortgage companies who won’t like lending to you because of it. Most high street companies will require that you’ve had experience in home ownership, but at the risk of repeating ourselves, not all mortgage companies are the same. Seek the help of a specialist lender and your BTL ambitions could well be realised, even if you’ve never owned property before.
There are many people out there that make a living from the BTL market and it’s not uncommon for some to own a large portfolio of properties. Most high street lenders will stipulate that it’s only possible to have one mortgage on one house at any one time, but if you know where to look, you’ll find companies that are more than willing to assist. That said, you could be looking at having to put as much as 40% down as a deposit.
Mortgage companies are primarily concerned with financial exposure to the vagaries of the property market, which is why they tend to stipulate a maximum on the number of properties that one person can own. Some lenders might set a limit of 5 total BTL properties, whereas others may have no limit at all, so shopping around, as always, is the key. There will be mortgage companies that actually prefer to working with those with large portfolios, offering them better, more flexible deals.
On occasion, it could be better to manage a large property portfolio through limited company, due to the fact that it offers limited liability to your personal finances should something drastic occur in the market. This can be a major boon for those looking for assurances, but it will mean more work all round, so it’s up to you to decide if the pros outweigh the cons.
The Buy to Let mortgage market is something that still offers a good potential return on investment. It’s just that you need to be a little more savvy these days to make a profit. Just like with any investment, there are benefits and there are pitfalls, which is why the advice we’ve provided is something you should bear in mind. Just remember to talk to someone who knows their stuff before you make commitments you can’t change at a later date.