Buy-to-Let Mortgages 1st Jun 2015
Getting the right mortgage for your buy to let property is more important than ever. There are a number of steps you can take before applying, to increase your chances of being accepted.
Work Out What You Can Afford
It is easy to fall in love with your dream buy to let property but if the rent does not cover the costs of the property, you could find yourself paying for it out of your salary or other income or have your property join the repossession pile. Work out what you can afford and only look at properties that fall within your budget. To do this you will need to work out your upfront and your ongoing costs, the likely deposit you will require and the rent you can expect from a property.
Upfront costs include the property purchase price, fees, taxes, refurbishment costs needed to get the property into rentable condition whereas ongoing costs are things like buildings & contents insurance, on-going maintenance costs, letting agency fees etc.
‘Stamp duty’ (property buying tax which has been renamed Land & Buildings Transaction Tax) calculations were changed in December 2014 and buyers now pay duty progressively based on how much over a threshold their property purchase is. Bands are now 0% up to £125,000; 2% to £250,000; 5% to £925,000; 10% to £1.5million and 12% above that.
Working out the costs is often the easier part, with estimating the rent being the tricky bit. Have a chat with a quality letting agent to get an idea of sensible rent levels in the specific areas you are looking to buy; this will only help you work out what properties you can afford, it will also give comfort to your mortgage provider. The Key Place would be happy to help you with this sort of stuff.
One of the biggest consideration in trying to work out what level of mortgage you can get is the amount of deposit you can afford – what percentage of the property’s value can you put down. For the best deals you will need a deposit of 40% + , however don’t panic if you can’t afford that as it is still possible to get a loan with 25-40% deposits.
Other things to think about in relation to buy to let mortgages are that (i) generally they have minimum rent levels associated with them so, for example, rent must be more than 125% of mortgage repayments, (ii) often they have minimum income requirements so, for example, you may need to earn more than £25,000 in salary and other income to get a buy to let mortgage and (iii) there is normally a maximum number of buy to let mortgages you can have with any one lender.
Check Your Credit History
When you apply for a mortgage, the lender will start by checking your credit history. This includes loans, credit cards, existing mortgages etc. By doing this, lenders can assess any risk involved in repayments on the amount they lend you.
You can do your own on-line credit check through a number of companies, such as Experian or Equifax. This will give you some idea as to where you stand financially before you submit your application. If you are buying with anyone else, get them to check their credit rating too. The higher your credit rating, the easier you will find it to borrow money.
It is important that your credit report is up to date. When researching it, if you find anything that you think is wrong, question it with that lender. If they have made a mistake, they will amend your report. You can get a note added to your credit report if, for example, you missed a mortgage payment due to illness. This will help explain your circumstances to anyone looking at your report.
Research the Mortgage Market
A mortgage is a huge commitment, and there are a lot of mortgage packages out there. It is essential that you choose the right one for you.
Even with fixed rate deals, if mortgage rates rise at the end of your fixed rate period, you may end up repaying more than you budgeted for.
You should seek specialist advice from an Independent Financial Advisor, or a Mortgage Broker. The Key Place can introduce you to people who will give you this specialist advice or you can get help from the Council of Mortgage Lenders (www.cml.org.uk).
Register to Vote
You need to be on the electoral register at your current address, so that lenders can confirm who you are and where you stay. If you are not on the electoral register, sign up now via your local council or on www.aboutmyvote.co.uk.
If your mortgage application is rejected, DO NOT PANIC. There may be a number of reasons as to why it has been declined, including too many credit applications, too much debt, payday loans, poor credit history, administration errors, not earning enough and being self employed. Bear in mind that every mortgage lender has a different policy and so just because one has rejected you, it does not mean that you will be rejected by all.
If you haven’t done so already, now is the time to seek specialist advice from an Independent Financial Advisor, or a Mortgage Broker who will be able to guide you in the right direction.
To summarise, do your homework and find out what you can afford and where you stand before you apply for your mortgage. Speak to the specialist and take their advice. Getting the right mortgage is one of the most important decisions in ensuring your buy to let investment is successful so take the time and seek the advice to ensure that you get it right ..... that will help ensure you will be able to enjoy the rewards that buy to let investing brings.
The Key Place offers a full buy-to-let service to investors and can introduce you to high calibre Independent Financial Advisors, Mortgage Brokers and Wealth Managers.