Ellen Roome from Cheltenham’s The Finance Roome talks through the various mortgage finance options open to landlords.
This has been a challenging year for landlords, indeed for all property owners, so it is encouraging to see the market becoming busy once again. It is always a good idea to make hay whilst the sun shines, as they say, and this applies to investors in property as well as residential home buyers.
Whether you are looking to expand an existing portfolio or thinking of buying your first investment, it is a good time to take advantage of the sheer choice of properties currently available. As an investor, chain free, with your mortgage arranged ready to go, you are likely to be in a very favourable position. Money has never been so cheap – you might well be pleasantly surprised at the actual cost!
There are two main types of mortgage products for landlords – Portfolio products for landlords with typically four or more mortgaged properties. Non-portfolio products are for single self-contained units, consumer buy to let customers for landlords with up to three mortgaged properties. Both options available buying as an individual, through a limited company or limited liability partnership (LLP).
You will need a minimum of 15% as a deposit, there are a handful of deals at 80% but very limited. All Lenders will assess borrowing capacity based on the deposit as well as your income from other sources. They will look at the potential rental income and type of property as well as the type of tenant you are looking to attract. Is it an HMO? A modern apartment? A family home? Who is going to rent the property?
Stress testing will be applied – this is where the Lender uses a higher notional mortgage rate to calculate the interest only repayment ensuring the rental income is well above this. Should the rental income fall short don’t panic. We can look to top it up by further considering overall income and expenditure. Any spare income can then be used to cover the shortfall and the full amount can be lent. This is known as top slicing.
If you intend to buy using a Ltd Company most lenders will require an assets and liability statement as well as your property portfolio schedule and a business plan. Key facts to consider are that loans over 80% LTV are not available for first time landlords; loans of up to 85% LTV can be considered; there must be a maximum of 4 Directors (all of whom will be asked to sign a personal guarantee) The Special Purpose Vehicle (SPV – subsidiary company created to minimise financial risk) must be UK based and generally have a specific SIC code.
There literally hundreds of mortgage products out there and we strongly advise that you speak to a Mortgage Advisor at the outset so that your investment doesn’t become a liability.
Come and talk to us about the buy to let mortgage that best suits your needs.