A buy to let mortgage is a loan for someone looking specifically to buy a property as an investment, rather than as a home to live in. One of the main reasons for investing into buy to let property is to earn additional income. In the long term, you may also gain from capital appreciation of the property. To fully understand how profitable it can be, you need to weigh up the income with the costs. It’s also fundamental that you seek tax advice before you take the plunge.
To be able to get the best deals or rates you need to distinguish between the different buy to let mortgages available. These include normal residential buy to let, Houses in Multiple Occupation (HMO), Limited Company buy to lets and Professional Landlord buy to lets. Depending on the type of property and investor that you are, you will fall under one of the categories above. We will focus on how to get the “best” deals or rates for residential buy to let.
The main area to consider is your individual circumstances. This takes into account your income, credit worthiness and deposit available. At the same time, you need to ensure that you meet the lenders criteria. Some lenders are more flexible, and others may have stricter policies. Whilst a few lenders are willing to lend with just a 20% deposit, most lenders will require 25% deposit.
The best rates will ultimately be offered to individuals or couples, that have a strong credit worthiness and low Loan To Value (also commonly known as LTV). Loan To Value is the percentage of borrowing against the property value.
The lower the LTV, the better the rates will be. To demonstrate this, on a property worth £400,000 with a deposit of £100,000 (25%), on a 2-year fixed rate, the lowest rate currently available is 1.51%. With a higher deposit of £160,000 (40%), the lowest rate currently is 1.19%.
There are more options and lenders available to you, the stronger your credit worthiness, which means you may qualify for better rates. The number of lenders available to you can be limited if you’ve had problems with your credit file such as defaults, County Court Judgements (CCJs) or declared bankruptcy, this could lead to you being offered higher rates.
In addition to your individual circumstances the rates can vary depending on the term of the product ie 2, 3, 5, 7 or 10 year fixed/tracker rate period. Choosing the term of product comes down to your personal circumstance and financial objectives.
Whilst the lowest rate will always look appealing there are a range of factors to consider which will make the overall rates more cost effective. These include cashback incentives, product fee, free valuations and conveyancing.
The final point to factor in is how you approach applying for the mortgage. You can go directly to most lenders yourself. However, using an independent mortgage broker can be beneficial, as we have access to lenders which are not available to the general public.
Overall, to get the best rates you need to have a larger deposit / lower Loan to Value, good credit worthiness and ideally an experienced adviser to help match your circumstances to the lenders criteria.
For expert advice contact: Ritesh Malkan at Crystal Financial Solutions on 0208 901 3737, or email [email protected]
