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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
I read recently on What Mortgage that there are strict criteria for those who want to sign up for interest-only residential mortgages and borrowers must show evidence of repayment plans to lenders. Would the same apply to me when applying for an interest-only buy-to-let mortgage? If so, what kind of strategy for repayment would I need? Would I need a savings plan or would the fact I am receiving an income through rent be sufficient?
Answer
Whilst interest-only is difficult to achieve for homebuyers, it is the modus operandi for most landlords who have taken on a buy-to-let mortgage. Taking interest-only keeps your monthly payments down, and as such, helps with cash flow to cover costs which arise when letting a property such as rental voids, repairs and maintenance etc.
Most landlords prefer this option and will retain the surplus cash to either put towards a deposit for their next investment, or make a lump sum reduction from their mortgage in due course.
For investors it is not so important to own the property at the end of the term because it’s not their home. To exit the loan, they have the option of selling or refinancing the property with the expectation that the property itself will have increased in value over the long term.
Remember, this is the expectation and as with any investment, the value of the property could go down as well as up.
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Question
I have come into some money through an inheritance and would like to buy a house by the coast to rent as a holiday let. By combining the inheritance and some of my savings I have calculated I will need only 35% to 40% LTV. I am looking at properties around the £350k mark and I have done some research and discovered I can probably rent the property out for £1,000 a week during peak times and £700 outside school holidays. Would I get a buy-to-let mortgage on this basis? What kind of information would I need to provide a lender? I don’t have any other BTL properties.
Answer
Holidays lets are typically financed using a commercial mortgage. Some buy-to-let lenders will accept them, although when underwriting they base the rental income on a stand Assured Shorthold Tenancy basis, and they require the borrower to earn around £40k in addition to the rental income.
If you go down the commercial mortgage route, the lender will be looking for you to have experience of holiday letting and/or want the property to already be proven as a holiday let. If you have neither, it’s not impossible to fund but your borrowing options will be much more limited. We have an adviser who has helped lots of clients in a similar position to you, so do get in touch if would like to talk through your scenario with him.
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Question
I am thinking about buying a second buy-to-let property. Would there be any advantage to remaining with the same borrower I am using for my current buy-to-let? My instinct is to seek advice from a broker to find the best deal but I wondered, with so much paperwork, if it might make it simpler to keep my loans under the same roof, so to speak?
Answer
Go with your instincts! It won’t necessarily be simpler to go with the same lender as each buy-to-let mortgage application is treated on its own merits and you may find you won’t get the best deal for your circumstances.
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Question
Are trackers or fixed-rates the best option in the buy-to-let mortgage market at the moment? I am remortgaging and I am on a tracker at the moment but I would value an expert opinion on whether to stick or twist!
Answer
Only you can decide which type of buy-to-let mortgage is best for your circumstances and much will depend upon your appetite for risk. At the moment there is little difference in pricing between trackers and fixed rates, both of which are at historic lows. However, my personal thoughts are that there is talk of interest rate rises looming which means that a tracker mortgage would increase, however a fixed rate would not – therefore, a fixed rate makes more sense.
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