Buy to let investment is booming in the UK. The government have introduced changes such as stamp duty tax to slow the market down, but it seems as though landlords are investing at record levels. Interest rates are still low despite recent increases, so cash sitting in the back isn’t the best prospect. We’ve put together 5 mortgage tips for landlords to help them in their buy to let investments.
- Use the power of your deposit
The amount of deposit you put down will usually impact the rates you’re offered. The higher your deposit, the more preferential rates will be on offer. If you have a small deposit, then rates tend to be higher. Lenders will usually look for a 20% deposit at least, with the majority asking for a 25% deposit. If you’re able to place a 40% deposit then you should be offered the best rates available (subject to the rest of your application).
Buy to let investment is all about cash flow and capital appreciation. The best mortgage rates will enable you to cash flow more each month, providing you with more rental profit. If you have little cash flow each month, then your funds may be better invested elsewhere.
- Using your equity
If your property gains value over the years, you can remortgage to release equity. The equity released can then be used to buy more buy to let property. Many successful portfolio landlords have used this same strategy over the years. The key is to understand how buy to let mortgages work and how you can leverage your investment to fund other purchases.
- Choosing your mortgage type
Mortgages are available on different rates and different types. For example, you can choose a repayment mortgage or an interest only mortgage. A repayment mortgage will mean you will own the property outright at the end of your mortgage term, once every payment has been made. Although you’ll have a property owned outright, the monthly mortgage payments are of course higher than interest only mortgages. This means that you won’t be generating as much cash flow as you possibly can.
Opting for an interest only mortgage means that you only need to repay the interest on your mortgage each month. The downside to this is that at the end of your mortgage term, you won’t own the property outright and will need to sell it. The advantage of an interest only buy to let mortgage is that you each month you will profit as much as you possibly can.
The majority of buy to let investors in the UK do prefer interest only mortgages. This is so that they can cash flow as much as possible.
- Choosing a mortgage broker
Being a landlord can keep you busy. Trying to manage your mortgages and finances may be too much to handle. An experienced buy to let mortgage broker can be invaluable for buy to let investors. Having the right mortgages in place and remortgaging at the right time can amplify your profits.
Experienced buy to let mortgage brokers can also offer you invaluable advice. For instance if the property you wish to purchase is in need of a heavy refurbishment, then a standard buy to let mortgage won’t suffice. There are other products available such as refurbishment finance that may be better suited. You may want to purchase at auction and for that you can use auction finance and so on. Having a broker by your side can save you a lot of time and frustration and they can often provide you with documents such as agreements in principle quite quick if needed to secure a deal.
This article was written by Martin Alexander, a leading UK mortgage broker. Martin is also a broker who often writes for expert mortgage advisor, the mortgage information website.