Buy to Let Mortgages With No Broker Fee To Pay

A Buy to Let Overview



The Buy to Let property sector has witnessed phenomenal growth over the last 5-10 years and remains strong despite repeated predictions of doom from certain quarters.

From it’s origins as a niche investment for relatively wealthy, business minded people, who paid commercial rates of interest for the privilege, the buy to let market now includes people from every walk of life – paying interest rates that closely resemble those on main residence mortgages.

Apart from historically low interest rates the expansion has been fueled by a diminishing confidence in pensions as the main long term investment vehicle for retirement planning. Added to this is the ten year plus rise in property prices following the recovery from the crash of the early 1990’s. In a highly priced market many first time buyers find it difficult getting on to the property ladder and have to continue renting, which in turn keeps the buy to let market buoyant.

Buy to Let – Current State of Play
Market Negatives

• The recent spate of interest rate rises will have made an impact on those landlord’s with variable rate mortgages, i.e. trackers, where monthly payments have risen but rents are contractually tied.
• Higher interest rates impact on the amount that can be borrowed versus rent achieveable (see 'Calculating Loan Amount' below). 
• Localised Oversupply - some cities like Manchester have seen huge development centred on new build appartments and converted mills / lofts to a point of market saturation. Oversupply inevitably leads to lower rents and possible rental voids. Coupled with rising interest rates, this has put a squeeze on some landlords invested in this area of the market.

Market Positives 

• Overall, modern day lifestyles are much more fluid and this has lead to an ongoing appetite for short term renting.
• Rising property prices have prevented many prospective first time buyers from getting on to the ladder and forces them to continue renting.
• The recent trend toward fixed rate products has provided a cushion against rising rates for many landlords who continue to expand their property portfolios.
• The migration of European Union workers to the UK continues and as workers need accommodation the buy to let market will remain buoyant - many rural / agricultural areas, previously looked on as prime residential only, now witness Buy to Let expansion as a result.

Buy to Let – How Does That Work?
In a nutshell, a property is purchased with the sole intention of letting or renting it to a tenant, either directly or through a local authority or housing association. The standard private rental agreement is known as an Assured Shorthold Tenancy (AST), which is generally for a six or twelve month period.

The buy to let mortgage has many of the same components as a residential mortgage, i.e. Interest Only / Repayment, loan to value, fixed rates, trackers etc. The key difference is that the maximum loan amount is based on the monthly rent achievable for a property in a given location, usually as specified by the Valuer acting on behalf of the lender. 
The majority of buy to let lenders stipulate a minimum personal income as part of their lending criteria - a safety net should rental voids occur - but it is rarely used in the lending calculation.

Calculating The Loan Amount 
Traditionally, the maximum loan to value on Buy to Let has been 85%. Some lenders have products that extend to 90% but the key determinant is ultimately whether the borrowing fits within specified rent criteria - and this can vary significantly, not only from lender to lender but between different products offered by the same lender!

One standard element in the Buy to Let equation is that loan amount is determined by using Interest Only as the default basis of payment - a borrower can still choose to repay the actual loan on a Repayment basis but Interest Only is used for doing the loan amount sums.

It is worth noting at this point that the majority of lenders rigidly apply the monthly rental figure specified by the valuer and the proposed loan amount must fall within that figure when multiplied by:

• A designated Interest Rate - this could be product rate or Bank Base Rate + % Factor
• A designated Rental Factor i.e. anything from 100% to 130%

Example: Property Purchase Price = £140,000 
Product LTV = 85%  so max loan on product = £119,000
Rent Calculated on Product Rate = 5.49% with Rent Factor of 125%

£119,000 x 5.49%  = £544.43 per month Interest Only x 125% = £680 Rent Required

Buy to Let – Finding The Right Mortgage
The services of a whole of market mortgage broker will often save a lot of time, money and stress for both experienced landlords and those new to the buy to let market.
The current buy to let mortgage market has a plethora of different products, often with widely differing rent factor criteria and variance on which interest rate is used with the rent factor. Added to this is a growing trend for lenders to charge an Arrangement Fee which is based as a percentage of the loan amount, i.e. 1.5% (£1500 on a £100,000 mortgage).
In choosing a buy to let mortgage you now have to contend with a ‘volatile’ mix of:

Selecting the most cost effective buy to let mortgage and ensuring that all the required property criteria is met can be an exacting and time consuming process.
Be aware that the valuation fee is always paid up front with the application and is non refundable once the survey has been carried out. If the Valuer specifies a lower achieveable rent the lender will reduce the loan amount - if the mortgage applicant cannot fund the larger deposit now required the valuation fee is 'lost' money.

Buy to Let – Making it Pay

• Take an objective view when selecting your buy to let property – will it be easy to rent out consistently? Is it in an area with good amenities and transport links? To which market will it appeal – young professionals, students, families? Check with lettings agents to determine ‘rentability’. Talk to a broker to ensure the mortgage can be serviced by the rent achievable, avoiding lost valuation fees.
• Is the property condition such that it will be acceptable to a lender and ready to let straight away. Be aware of all Health & Safety requirements and whether this will mean costly property improvements.
• If using a letting agent are they efficient and proactive – every month with no tenant is a drain on your own finances. Ensure you know exactly what level of service is being provided – who is responsible for seeing to basic maintenance and emergency repairs.
• Make sure you have adequate insurance in place – many buy to let policies have a ‘rent guarantee’ option that could give peace of mind over rental void periods.
• Ensure you have a valid tenancy agreement in place.

The buy to let market has proved to be a sound investment for many people. As always, do as much groundwork as possible before making any financial commitment.
Seek the advice of reputable professionals and cross reference this with your own research.

CAN WE HELP YOU SECURE THE RIGHT BUY TO LET MORTGAGE?

0800 988 1889  enquiries@mortgageofchoice.co.ukEnquiry Form