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Buy-to-let mortgages: the facts you need to know

For those investors who need additional finance to buy a property and then let out, or to build their property portfolio, there has never been a better time.

Buy-to-let (BTL) mortgages have never been cheaper in real terms and never has there been so much choice on the market.

Quite simply, the financial sector has woken up to the continuing rise and rise in the rented sector and is responding to the growing need for support finance: they recognise the returns they can make by funding investors. Go onto any of the comparison websites and you’ll be spoilt for choice. Yes, they are usually more expensive than normal mortgages, and they also come with a fee, but they could help you on the road to becoming a property investor.

Select your property wisely and the returns (in terms of rental income as well as capital growth) can be significant – even with the proposed changes to interest relief coming down the pipeline.

Take out costs such as maintenance, call outs, agents fees and so on (the fees should more than pay for themselves in achieving maximum occupancy rates) and our clients achieved on average a 5% net return on their investment last year… with a healthy capital growth on top.

Who can get a buy-to-let mortgage?

Getting a BTL mortgage is actually easier if you already have a mortgage on your home – it demonstrates your credit record. Being stretched on your credit cards won’t help, and having an income (even if it’s made up in part or entirely) in pensions, will be crucial.

The reason is that lenders will play safe: if you can’t let your property, where will the payments come from?

Upper age limits for when the mortgage will end will vary between lenders – usually between 70 and 75.

The main difference between BTL and ordinary mortgages is the loan to value ratio. The minimum deposit is usually from 20% up to 40%, and obviously the terms and interest rates become more favourable the larger the deposit.

And another big difference is that most BTL mortgages are interest-only: you don’t pay anything off the lump sum borrowed each month but do then repay the capital in full at the end of the loan period. This doesn’t mean you can’t reduce your borrowing along the way using rental income – but make sure that this will not be penalised.

The maximum you will be allowed to borrow will also be linked to the amount of rental income you expect to receive – with repayments erring on the side of safety. Lenders typically expect the rental income to be between 25% and 30% higher than your mortgage payment.

So how much should you borrow – and allow for expenses?

If you have a property in mind that you’d like to let, speak to a specialist local agent – one who focuses on letting ideally, rather than simply bolts it on as an extra service – and they will give you an accurate assessment of likely rental income as well as advise you on what you need to do in order to maximise your income.

They can also advise you on the costs involved in being a landlord – not least, maintenance, repairs, insurance and so on.

Equally, a good agent will also be able to steer you towards sound investments locally: they will know, for instance, developers keen to push sales through of the last remaining properties in a development, and prepared to do a deal.

It’s also sensible to speak to a mortgage broker: yes, the comparison websites such as Money Saving Expert, Moneyfacts, Comparethemarket, Which and MoneySuperMarket are fantastic, but a good broker will more than earn their corn by ensuring that what you get is the perfect fit for your precise requirements.

Both the letting agent and mortgage broker will also tell you to ensure you have a ‘cushion’ in case the property becomes unexpectedly void for a period. And, do remember that property prices – as with all investments – can go down as well as up. You need to be looking at the long term rather than a quick killing.

Still interested? Then why not give us a call: we’d be delighted to mark your card on investing in the South Wales property market and help you achieve your aims!

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