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Mortgages

Buying a property can be a confusing experience. Whether you are just starting out on the property ladder or expanding your property portfolio, getting the right mortgage can make a huge difference to your returns.

Most investors spread their capital over several properties and do so via finance, but you should explore how much your property is going to cost and ensure you can afford the monthly payments. A buy-to-let mortgage is a loan designed for investors who intend to lease their property out to a tenant, rather that occupy it for self-usage. These mortgages often require larger deposits and the interest rates and arrangement fees are slightly higher than those of a standard residential mortgage, as they carry a greater risk for the lender.

If you are looking to purchase one or two properties for your pension then it may be preferable to go to a bank, but if you are buying multiple properties for a larger portfolio you should speak with a mortgage broker or specialist lender. Your accountant will also advise you of the best option to choose.

What if I’m not a UK resident?

You do not need to be live in the UK to get a buy-to-let mortgage and purchase UK property although foreign nationals must undergo stringent money laundering checks. These checks are on the investors identity, place of residence and where the funds are coming from for the lender to offset as much risk as possible.

The investor will be required to put a larger deposit down and the arrangement fee and interest fee will be higher than what a UK resident would pay.

What are the typical requirements?

A residential mortgage will require 5-10% of the value of the property as a deposit, most buy-to-let loans will require at least 25%. The maximum loan-to-value most lenders will consider is 75%. Loan to Value (LTV) is the amount of mortgage expressed as a percentage of the value of the property or purchase price, whichever is lower.

For example, a mortgage of £80,000 on a purchase price of £100,000 would be 80% LTV. If the valuation of the property is lower than the price you’ve agreed, the LTV will be based on the valuation.

The lending criteria is different to a residential loan as lenders will review how much rent you receive per calendar month and a surveyor will be instructed to view the property for confirmation. They work on the lending criteria that the rent is worth at least 125% of the monthly mortgage interest payment.

Example

Mortgage£100,000
Interest rate @ 5%£5,000
Lending criteria125%
Annual rent required£6,250
Monthly required £6,250÷12£520

What types of buy-to-let mortgages are available?

You can choose to pay either interest only or capital repayment.

  • Interest only mortgage: – mortgages where you only pay the lender the interest payments for a fixed term.
  • Capital repayment mortgage: – a capital repayment mortgage allows the investor to repay the value of the loan plus the interest over a fixed term.

It’s always advisable to get an Approval in Principle (AIP) before committing to buying your property if you are looking to obtain finance further down the line and if purchasing an off-plan property.

An AIP indicates how much you could borrow based on the information you have provided, it performs various criteria and credit reference agency checks, and gives a conditional decision to lend based on its findings.

If you have any questions or would like to speak to a specialist advisor please contact us

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