Lenders have slashed mortgages to record lows, making it a great time to grab a deal and get on the housing ladder or invest in buy-to-let.
To help you discover the right deal for you, we’ve asked mortgage experts, Capricorn Financial for their advice and the best mortgage deals and buy-to-let mortgage deals currently on the market.
Interest-only versus repayment mortgages
Let’s start by quickly going over the two main types of mortgage: repayment mortgages and interest-only mortgages. The majority of residential mortgages currently offered by lenders are repayment mortgages. If you're a landlord however and taking out a buy-to-let mortgage - or if you have a large income - an interest-only mortgage may be a better fit.
So what’s the difference between the two?
A repayment mortgage works by repaying money borrowed on a monthly basis over your mortgage term. If you keep up payments, you’re guaranteed to have repaid the full loan by the end of your mortgage term. An interest-only mortgage is different as you only pay interest to your lender each month. There are risks with this type of mortgage as there is no guarantee that the investment will be worth enough to pay off the mortgage by the end of the term.
Alex Smith, Senior Mortgage & Insurance Adviser, says, “If you want a mortgage-free asset in the long term and are willing to forego income in the short-term, a repayment method is sensible.”
What are the best buy-to-let mortgage deals currently on the market?
If you’re considering investing in buy-to-let, Capricorn have recommended the following rates - but have stated that they do not take into account a landlords exposure to a lender, number of properties owned, personal income, or the rental income of the subject property.
They have assumed a purchase price of £500,000 across the board.
The best buy at 75% loan to value has a 1.94% 2 year fix or 2.75% if fixed for 5 years.
The 2 year fix has a £1,999 product fee whilst the 5 year option comes with a fee equal to 2% of the loan amount. Both offer free valuations.
The best buy at 60% loan to value is 1.44% 2 year fix, or 2.45% if fixed for 5 years. Both come with a £1,999 product fee and free valuation.
Richard Blanco, seasoned landlord, comments: "Most commentators think that Bank of England interest rates will be stable for at least a year and when they start to rise will do so only gradually, so personally I see no reason to be anxious about the future direction of rates in the immediate future. Ultra-cautious investors can of course opt for 5 year fixed rates, some may be forced to because of the new criteria brought in as a result of Bank of England regulation - and 5 year fixes are indeed at a historical low. I tend to stick to cheaper 2 year products – but you should always get independent financial advice."
Dramatic changes involving buy to let mortgages coming up this year - any tips for landlords?
George Osborne unveiled a shock tax change in 2015: the tax relief that landlords get for finance costs will be restricted to the basic rate of Income Tax.
To put it another way, the current rules give most landlords a 40% discount on their current interest costs, but under the new regime, this discount will drop to 20%. This tax change will be phased in from will start to be phased in from 6th April this year and fully implemented by 2021.
There’s no doubt these changes will makes things more difficult for landlords, but the first thing to note is that landlords who are basic rate tax payers (earning less than about £40k), or those without a mortgage, won’t be affected at all.
Secondly, there are steps landlords can take to try and cut their interest costs. The first being re-mortgaging. Buy-to-let mortgage interest rates have fallen significantly in recent years, so deals currently on the market may well be substantially better than on products arranged a few years ago. With large increases in property prices in London, another tip is to get your rental property re-valued. This will make your lender recalculate your LTV, and a lower LTV means a better interest rate and a larger choice of lenders.
Click on our Instant Valuation tool to find out your property’s current value for sales or rental.
What are the best residential mortgage deals currently on the market?
Getting a great deal can save you thousands of pounds each month - so it pays to be in the know. Here are the top residential mortgage deals recommended by financial experts, Capricorn Financial:
Rates start at 1.19% fixed for 2 years, or 1.82% if fixed for 5 years.
If the deposit is decreased to 25%, rates are 1.34% fixed for 2 years, or 1.99% for 5 years.
If the deposit is decreased to 15%, rates are 1.55% fixed for 2 years, or 2.28% for 5 years
If the deposit is decreased to 10%, rates are 2.13% fixed for 2 years, or 2.82% for 5 years.
If the deposit is decreased to 5%, rates are 3.34 for 2 years, or 4.19 for 5 years.
If you’re still a long way off from saving a 5% deposit, you do have other options. One of which is to take out a joint mortgage with your partner, family or friends.
A lot of people may not be aware that up to four people can jointly be registered as legal co-owners of a property – which would mean forking out a lot less to get onto the property ladder, or securing a larger mortgage. If you decide a joint mortgage is best for you, the next step is to decide on how you will own the property: through a joint tenancies, (usually best for married couples), or tenancy in common, (more typical for friends or relatives who are buying together). Once you’ve all made a joint decision, the application process is similar to that of a standard residential mortgage.
Alex Smith at Capricorn believes that “Tenancy in common is the best set up for all purchases. This is because the ownership can be changed easily, i.e. 50/50, to reflect a joint ownership, or an uneven split for tax planning purposes.”
He continues: “Buyers entering into joint mortgage arrangements should ensure they have life insurance to cover the mortgage. The policy should also be written in trust for the other borrower’s benefit which we arrange for all our clients without cost.”
Guarantor mortgages – are they worth it?
As a result of the government’s increased Stamp Duty rate for subsequent property purchases, parents who already own one property are now subject to the higher taxation rate if they help one or more of their children with a purchase - even if they don’t live in the property.
A new structure known as “joint borrower sole proprietor’ is now a much better option, as the guarantor is kept off the deeds.
Alex Smith, Senior Mortgage & Insurance Adviser comments “Joint borrower/Sole Proprietor mortgages are very useful where parents are happy to have their income included in the mortgage assessment. Age can be prohibitive however, as the repayment term offered may be too short to make the mortgage affordable, but an increasing number of lenders are starting to appreciate that people are choosing to work beyond the age of 65.”
If you’re interested in any of these exclusive mortgage rates, or speaking to an expert mortgage broker, give us a call today on 0207 099 4000.