Whether you’re a first time landlord or adding to your existing portfolio, the chances are you will need a buy to let mortgage. The latest NLA research tells us that 1 in 7 landlords increased their portfolios in the last 3 months with 69% using a buy to let mortgage. Because you can set the interest element of your mortgage payments against your tax bill, 72% of landlords opt for interest only mortgages.
Minimum 25% deposit
When searching for your ideal mortgage there are a number of factors you will need to take into account. Firstly you’ll need a minimum deposit of 25% and most lenders will expect you to be able to prove income of £25,000 per annum from sources other than rent. The rental income will usually need to cover 125% of the mortgage payment usually at a notional rate of 5%. You will also need a strong credit rating, county court judgments and default accounts could make getting a mortgage impossible. Many lenders use credit scores, so overdrafts or high balances on credit card can suggest you are a higher risk, reducing balances well below 50% of the limit seem to help.
Loans to value of 60% or less
The best rates are available on loans to value of 60% or less. Natwest is offering a 2 year tracker at 1.95% with a £1,995 fee and this includes a free valuation and legal services. However like many lenders, NatWest will only lend to people with fewer than 4 properties. Virgin offers the same rate and fee but has a cap of 10 properties. BM Solutions and The Mortgageworks (TMW) have no limit on how many properties you can own and offer 2 year tracker rates of 2.39% with TMW allowing up to 65% loan to value and charging a £1,995 arrangement fee.
Loans to value of 75%
The best buy at 75% loan to value is the Mortgage Trust which has a 2.25% 2 year tracker product exclusively available through NLA Mortgages. But this product comes with a stonking 2.5% fee. Often a flat fee works out more cost effective, particularly if you are buying a high value property, where the percentage approach to fee setting creates a hefty charge. Santander offers a 2 year fix at 2.79% with a £1,995 fee at 75% loan to value, but again they won’t deal with you if you have more than 7 properties. The cheapest mortgage for larger landlords is from Fleet which offers a 2 year tracker at 3.06% and a 1% fee. Like many specialist lenders you will have to access this deal via a broker. Other options for larger landlords include commercial loans with high street banks. About 12% of landlords opt for this route. Although there is no cap on the number of properties you can own, often loans will be on a repayment basis with rates of around 4% and a 1.5% arrangement fee. The advantage of commercial lending is you can develop a relationship with the manager and may get favourable terms over time. Lloyds Bank are keen to work with landlords.
High loan to value
Finally if you are looking for a higher loan to value, Hanley Economic are offering a fee-free 2 year tracker up to 80% at a rate of 3.5%. This deal is accessed via a broker, but you can approach many building societies directly, although some are prone to idiosyncratic criteria and occasionally geographic restrictions. 31% of landlords go direct to a lender and you can find out which have the best rates at Money Facts. One consideration is speed of processing, the average being 5 weeks. Nearly two thirds of landlords use TMW, Godiva and BM Solutions because of their speedy online systems, openness to larger landlords and competitive rates.
Richard Blanco is a London based landlord developer with properties in North, East and South East London and the Midlands, and he’s also a London Representative for the National Landlords Association. He has worked with Portico to help share his expert experience as a landlord. If you’re a buy-to-let landlord, you may be interested in our competitive lettings packages. Our flagship Concierge package is a uniquely personal service, which takes all the hassle out of being a landlord, our Comprehensive package is a cost-effective property management service with rental payments guaranteed, and our Essential package is great value for money, and includes exactly what you need to get up and running as a landlord.
For more information on our packages and how we can help you maximise your return on investment, give us a call on 020 7099 4000!