Practical Advice To Help You Profit From Rental Property
13 Tips On Buy To Let Mortgages
Choosing the most suitable mortgage from the hundreds of buy to let mortgages available is one of the most important things you will do when you invest in rental property. Selecting the best buy to let mortgage for your circumstances can make a difference of £10,000's over the long term.
Always take out a mortgageon your property even if you have the cash to buy outright. To make property investment really worthwhile you need to build up a portfolio of properties, so don't tie up your capital buying just one. Use it for deposits for as many houses as you can. For example, rather than use all your capital to buy one house with no mortgage use it to buy say five houses.That way you'll benefit from capital appreciation.
There are circumstances where you may want to use cash for the initial purchase e.g. to buy a property at auction or to get a property ahead of another buyer by offering the vendor a quick sale, but take out a mortgage later.
Similarly, take out the maximum buy to let mortgage you can on each on each property. However, if you borrow more than 80% you may be asked to pay a higher interest rate so take that into consideration.
Make sure your rental income will cover your mortgage costs and other costs including an allowance for the house being empty between tenants. Some investors subsidise their investment putting in money every month. This can work when prices are rising strongly and you know you are making a healthy capital gain every month but it's a risky way of investing.
Use an interest only mortgage. This will keep your monthly payments much lower and allow you to accumulate cash for further investments leading to further capital growth. Paying off the mortgage sounds nice but you'll end up with far fewer properties in your portfolio.
Fixed rate mortgages provide security. Since no-one can predict how interest rates will move over the next few years it's impossible to say whether fixed rate mortgages or variable rate mortgages will produce the lowest cost for the borrower. However using fixed rates for at least the majority of your properties provides a form of insurance against unexpected rises in borrowing costs.
Consider a longer term fixed rate. Many borrowers opt for a short fixed term loan of 2 or 3 years possibly to get the lowest interest rate. At the end of this period they are automatically switched to the lenders standard variable rate. Two problems with this: they have not really got long term security since the loan period is so short; and they must pay the lenders additional charges to take out a further fixed rate loan. for security. Consider taking out a 5 or 10 year fixed rate mortgage.
When you are looking for a buy to let mortgage shop around. There are over 20 buy to let lenders in the market with a huge choice of buy to let mortgages including fixed rate mortgages and variable rate mortgages.
Mortgage brokers are very useful, especially if you hate filling in mortgage application forms. A good mortgage broker will know the mortgage market. He/she will be aware of which products the lenders are introducing or withdrawing from the market; he will be aware of how interest rates are moving and if a lender has a special good value offer available as a way of gaining market share. They may also have special mortgage options arranged with lenders that are not available to the public direct from the lender.
There are mortgages for the self-employed etc etc. You just need to track down the specialist lenders who will cater for your circumstances.
There are also lenders who specialise in mortgages for properties which need total renovation. So if you fancy buying a complete wreck and doing it up before renting it out or selling it there are lenders who will help you finance this.
Remember to consider all the costs involved in taking out the mortgage. Lenders increasingly try to make up for offering low headline rates by bumping up their charges. Watch out for the high exit charges as well as the set-up charges.
Look out for tie-ins i.e. penalties which must be paid if you redeem the mortgage before its term is complete, and take these into account when making your choice.
Wanting to go for the big time? If you already have a succesful track record look for a portfolio lender who will provide cash to build a portfolio quickly and easily albeit at a slightly higher greater cost. They will provide you with large sums of money and trust you to invest it in the properties you choose, rather than checking out each purchase individually as with the normal lender.