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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
What’s the difference between buy-to-let and residential?
Sorry for the stupid question! I am hoping to invest some money by buying a rental property and letting it out. Do I need a buy-to-let mortgage or a residential one?
I am looking at lists of deals and the rates for residential are cheaper but not sure if I can use them. Thanks so much.
Answer
Ah yes, industry jargon! The mortgage industry is terrible for this. A residential mortgage is one for where the borrower intends to live there themselves.
A buy-to-let mortgage is for a property you will rent out to a tenant – so this is the one you need.
And yes, I am afraid they are a little bit more expensive. This is because they are classed as being higher risk than residential mortgages, so lenders charge more.
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Question
Are we too young to get a mortgage?
My brother is 18 and I am 19 and we have been left a rather large inheritance by our grandmother. We would very much like to invest this in a property which we intend to let out.
We have done the sums and we understand we could take out a mortgage for 50% loan-to-value (LTV) with our joint sum of money.
However, whenever we mention this to people they look horrified and suggest we are too young?
I agree, we don’t have much in the way of a credit record let alone experience. However, the advantage of our age is we don’t have any debt and although we have only earned money through part-time employment, we have not been in arrears or left any bills unpaid.
I should probably add we are both students and have student loans. Are we a good candidate for the buy-to-let world or should we invest our cash elsewhere?
Answer
Well, I think you sound like great candidates for buy-to-let! And what a great way to invest your money – a really safe way to protect the capital value whilst also providing you with some form of income.
Now, you will find that some mortgage lenders will be reluctant to lend to you, but a good mortgage broker would be able to help you find a lender who will be able to support you with your endeavours and guide you through the house buying process from start to finish.
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Question
Rental yield after five years of ownership?
I have just read an article explaining how rental yield is calculated. We have held our property for five years – how is the rental yield calculated in this situation?
Answer
The yield of the property is a snapshot of a moment in time, so if you take the annual rent and divide this by the value of your property, then multiply by 100, this will give you the yield.
For example, a property that receives monthly rent of £1,300, and is valued at £300k, is generating a yield of 5.2%.
The yield five years ago, may well have been different depending on the local market conditions at the time.
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Question
Locking into a long-term deal? Is it advisable?
My buy-to-let property is ticking along nicely and I am due to remortgage in February as I am coming to the end of a two-year variable.
I just wondered whether you had any advice on long-term deals? I am considering a five-year fix to shelter from the interest rate rises but are there any options to lock in for longer – maybe 10 years? Thanks for any help you can provide.
Answer
I love a long-term fixed, especially when rates are as low as they are now! All of my mortgages are on five-year fixed rates as I like that I can budget, I don’t need to worry about interest rate movements, and I don’t have to remortgage every couple of years (which saves on fees and time).
Whether they are right for you would be a more involved conversation centred around your plans for the property, but assuming you intend to hold onto it for five years then this would be a great option for you.
Ten-year fixed rates are available in the market now, although they are a bit more expensive than the five-year options, which can put people off. Some people feel that 10 years is just a bit too long to commit to the mortgage.
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