Low interest rates on cash savings and concerns regarding the volatility of the stock market, coupled with a resurgence in the property market, have led to something of a restoration in the popularity of buy to let mortgages. With mortgage rates remaining low and the potential for inflation leading to higher rental returns, the buy to let market is tempting investors once again, despite an impending income tax rise and the imposition, in April 2016, of an additional 3% in stamp duty on second and subsequent properties
If you are thinking of applying for a buy to let mortgage, there are several matters that need to be borne in mind before proceeding.
- Buy to let mortgages are more difficult to access now than in previous years but it is not impossible if you take the correct steps to optimise your prospects of success.
- Buy to let mortgage lenders demand a significant contribution from the borrower. This will normally be in the region of 25% of the property’s purchase price. Unless a deposit of this sum is available it is unlikely that mortgage facilities will be granted.
- The interest rate on a buy to let mortgage is likely to be higher than on a conventional arrangement.
- The fees associated with applying for a buy to let mortgage are also likely to be higher.
- The rental yield, net of any expenses such as property maintenance costs, will need to be sufficient to do pay the mortgage instalments. This may not always be achievable for certain properties
- An experienced and knowledgeable and independent mortgage advisor can be your best asset in securing your next mortgage.
Applying for a buy to let mortgage
The key to obtaining a buy to let mortgage is to carry out the necessary background work. Buy to let mortgage lenders will look at whether the rent that is recovered on the property is sufficient to exceed the mortgage instalments by a specific percentage. Many require a total rental income of 125% or more of the instalments. Research may therefore need to be carried out to show the rental returns on similar properties in the same locality as the house that you want to purchase in order to demonstrate that this is feasible.
Once you have done your homework you will need to find a lender. Many High Street banks and building societies offer buy to let mortgages but may not necessarily offer the best deals. It may be beneficial, therefore, to approach a specialist mortgage advisor or broker who will be able to advise you as to the various options and current deals that available and which are the most suitable for you. A mortgage advisor will also be able to assist you in deciding whether you require a repayment mortgage or an interest only arrangement.
Obtaining a buy to let mortgage is a relatively straightforward process and investing in a buy to let property is, in the view of many, a more profitable and secure investment than stocks and shares or cash savings. Property prices do fall, as well as rise, however, and, especially if you are a first time investor, it is always wise to take independent advice before proceeding.