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Our property investment expert is Jeni Browne, Sales Director at
Mortgages for Business
www.mortgagesforbusiness.co.uk
Tel: 0345 345 6788
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Question
Do we need to have a residential mortgage to get a buy-to-let?
My wife and I are in our late 40s and have always rented. We have been looking at houses to buy for ourselves and our two children but we can’t afford to buy the property we need in the our area. This is because we need three bedrooms, at least, and a garden and these kinds of properties are way out of our price range.
We’ve decided instead to get on to the property ladder by purchasing a buy-to-let. This way we can purchase a flat, which is within our budget.
Our question to you is, are we allowed to take out a buy-to-let if we’ve never previously had a mortgage? And, if the answer is ‘yes’, should we get an interest-only or repayment mortgage? It would be good to build up some equity but I know repayment is not standard for buy-to-let.
Answer
What a great plan. So yes, a handful of lenders will offer a buy-to-let mortgage to a first-time buyer. The decision on interest-only versus repayment is harder to answer and will depend on your priorities.
Most landlords tend to opt for interest-only to keep their monthly payments down, choosing to use surplus rent to use for either a lump-sum reduction on the mortgage, or as a deposit on a second property.
On the other hand, repayment is great if your priority is to ensure that the property is mortgage free at the end of the term, but the trade-off here is that the payments will be higher per month. I hope this helps!
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Question
Purchasing buy-to-let mortgage for a new build
Is it possible to get a buy-to-let for a new build property and if so are there any restrictions? I have spotted a potential investment property in a block of flats currently under construction near my work.
It’s situated near a main commuter station to London and is in an area where house prices are growing as the area is up-and-coming. However, this will be my first buy-to-let venture and I don’t want to make a mistake.
Answer
It is absolutely possible, although you will find that some lenders scale back on loan-to-values (LTVs) for new-build flats.
There are lenders who will go as high as 80% (subject to the rental calculation working out), but the pricing here is toppy, so ideally, you will be able to put down at least a 25% deposit.
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Question
How to calculate what I can afford?
I would like to purchase a property for investment purposes and need some advice. I have a £80k deposit to put down on a property – but I am not sure where to purchase or what to buy yet? How do I calculate what I can afford based on the amount I have to invest?
I understand the rental payments must cover the mortgage repayments with some left over. Once I get an idea of these calculations I can start to pinpoint the type of property to buy.
Answer
Okay, so as a general guide, you will need to put in 25% of the purchase price as a deposit, but you will also need to cover stamp duty (don’t forget the surcharge!).
Roughly speaking, if you buy for £250k, you will pay stamp duty of £10,000, and pay a deposit of £62,500, leaving you with £7,500 for survey fees, solicitor costs etc.
The standard rental calculation that you’ve mentioned is that the rent needs to be 145% of the interest payment, assuming the interest rate is 5.5%. If you are buying through a limited company, then this calculation is 125% at 5.5%.
There is some flexibility on this, so use it as a rough guide only.
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Question
Two mortgages or one?
A great opportunity has arisen for me to two flats in the same Victorian conversion. They are both in good condition as they were previously rented out – they just need some decorating.
Would I need two separate buy-to-let mortgages for these or can I purchase them jointly with one?
Answer
The short answer is either. Most lenders want to offer a single mortgage against a single property, so you will find there is much more choice should you opt to buy them individually – and more choice generally means lower interest rates.
On the other side, there are ‘portfolio’ mortgages available where there is a single mortgage secured against two or more properties. These are typically more expensive, however, some people prefer them, as they reduce the administrative burden of having multiple mortgages.
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