Today's Landlord Re-mortgage Providers...
Introduction - it sounds obvious but
remember that your property is at risk if you cannot or do not keep up on
payments on the mortgage secured on it. Obtaining the right finance
package is vital in maximising your net profit and being able to achieve
your property investment goals. The first step is to obtain balanced
financial advice � it is always hard if you have no personal contacts in
the financial service industry. IFA�s are invaluable in working with a
select band of property mortgage companies and speeding through mortgage
applications. They are best placed to advise on all buy to let mortgage
products currently available in the marketplace. Bear in mind, they are
not trained to advise on buy-to-let investments per se. You could contact
lenders directly. Tied agents are paid by life, pensions or insurance
companies to sell you their products. financial internet portals are an
excellent way to compare like-for-like property products in terms of
rates, features and background information.
Calculate How Much You Can Borrow - you must now calculate how much
you can borrow; mortgage property lenders look at your deposit size (loan
to value) and how much you earn (income multiples). The smaller your
deposit, the more your mortgage lender may charge you (supposedly for
extra risk). Lenders may apply a mortgage indemnity guarantee on to you if
they feel the loan to value is too small i.e. your deposit is too small a
%, relative to the property value.
Choose Your Mortgage Type - the next step is to choose your
mortgage type and mortgage repayment method. A mortgage is a contract with
a lender that puts up your property as security against a loan. The longer
the mortgage term, the smaller the monthly payments (however the overall
cost is higher due to larger total interest repaid). You may choose the
method by which you repay interest; a standard variable rate, fixed rate,
discounted or capped mortgage. you may opt to repay the mortgage by using
capital repayment mortgage (where part of your monthly payment goes toward
paying off the capital and part of the payment is interest on the
capital). Every year the outstanding capital balance reduces, but not the
repayments). Alternatively, you may opt for an interest only mortgage
(where payments to the lender are made up of interest only). Here, it is
your responsibility to (in parallel) pay into some form of investment
scheme (endowment, ISA or pension) to pay off the capital at the end of
the term.
Reference Checks - your mortgage lender now carries out reference
checks so they have confidence you will repay the mortgage. In addition,
they will want you to confirm whether you have ever been made bankrupt or
have County Court Judgments (CCJ�s), for debts. For the Self-Employed, a
self-certification loan may be the only option in this applications
process. Next, the lender will send out a Valuer to assess the re-building
cost of the property so the lender has confidence that if the property
were sold the mortgage would be repaid.
Characteristics - the main differences between residential property
mortgages and buy to let property mortgages are that; firstly the size of
the deposit is larger; typically as much as 20% of the loan to value
(LTV); secondly, the interest rate will be higher; 0.5% above the base
rate; thirdly, your lender will demand the anticipated rental income be at
least 130% of the mortgage repayment; fourthly, your lender will expect
you to use an accredited Association of Residential Agents (ARLA) letting
agent to confirm the rental value in writing and also to manage the
property for the first 6 to 12 months.
Flexible Options - by using a Buy-to-Let mortgage that is also a
flexible mortgage it becomes easier to achieve your financial goal(s).
This is because you will have an adaptable financing structure to underpin
goals. A �flexible mortgage� has key features to assist property
landlords; firstly, it allows the calculation of interest on a daily basis
thus saving thousands in total interest charged; secondly, the ability to
overpay allowing the mortgage to be repaid sooner; thirdly, mortgage
payment holidays and underpayments minimise cashflow problems during
unexpected void periods; fourthly, a draw down facility to allows
additional borrowing at same low rate to fund property improvements;
fifthly, a current account that aligns saving and debt interest rates and;
lastly, no redemption penalties so you can pay the mortgage off early
without penalty.
Offsetting - Choosing which mortgage repayment vehicle Is most tax
efficient depends upon each individual situation. For tax purposes,
mortgage interest can be �offset� against rental income; the lender does
not always demand you adopt an additional property investment vehicle to
run alongside to pay off the capital - meaning monthly mortgage repayments
are smaller, creating incremental overpayment potential, which in turn
reduces overall cumulative interest further over time.
