Dale Jannels, managing director at All Types of Mortgages (AToM), has provided answers to some of the most common questions people have about buy-to-let mortgages.
1. How easy is it to get a buy-to-let mortgage currently?
There is more lender choice now than there has been for some time. A number of lenders in the market are after huge volumes in the buy to let sector and many are not only looking to attract new customers with fantastic rate offerings, but also changing criteria to fill gaps in the market.
2. Is lending for property investment as a whole growing?
I believe so. The market is still tough for first-time buyers and whilst that remains, many will still be forced to rent. Therefore the buy-to-let sector will continue to grow for some time yet.
3. What is the highest LTV available at the moment?
A small number of lenders will go as high as 85 per cent loan-to-value (LTV) mortgages. So a deposit of only 15 per cent is required. 70-75 per cent LTV tends to be the most popular though.
4. What is the lowest rate available at the moment?
This can often depend upon the day you quote but for someone with a large deposit, rates can start as low as 2.55 per cent. However, the lowest rate does not mean it is the right deal! Many rates in the buy-to-let sector come with a lender arrangement fee and this can range significantly, in some instances, as much as three per cent of the loan amount.
5. For first time landlords, what aspects can affect them getting a mortgage?
For inexperienced landlords, some lenders will restrict the maximum loan available. In the main, a minimum 15 per cent deposit is acceptable. However, you should note that the smaller the deposit, the higher interest rate. Always do your homework as the higher interest rate could affect your rate of return on rental income and budgeted forecasts. In addition lenders will always be looking at affordability and satisfying their requirements that the customer afford their residential mortgage as well as covering any rental voids on the buy to let.
6. How easy is it to get a mortgage on homes of multiple occupancy?
Usually, homes of multiple occupancy (HMOs) are only available to experienced buy-to-let investors. The maximum number of bedrooms is normally eight (some lenders will agree to much larger properties) and all necessary consents must be in place. Customers should have at least three paying tenants who form more than one household in their property. Student let mortgages are also available to customers who are renting their property out as student accommodation.
7. If an investor is over 65, is it possible to still get funding?
Absolutely. Life doesn't end at 65 and neither should the ability to obtain mortgage finance. Some buy-to-let lenders will allow the term of the mortgage to finish at age 85 and a few even longer. At the older end of the scale these cases are usually manually underwritten.
8. Do you offer products to aid refurbishment of properties?
A number of lenders have realised that properties can be in apoor state of repair when purchased and may need some work to achieve the maximum rental. A number of lenders have accommodated this and offer products to cater for these scenarios. Normally, evidence of savings will be required to support mortgage payments whilst the property remains untenanted and refurbishment works undertaken. The work should normally be completed within three months of completion and prior to letting out. Additional funds may be released if value has increased and after a satisfactory re-inspection to confirm improved end value. Most lenders will require a 25 per cent deposit and some products have no redemption penalties, so borrowers can switch to a normal buy to let product once works are complete.
9. Are there any innovative products coming to the market?
We are seeing lots of innovation in the mortgage sector. One, in particular, is attracting significant amounts of interest. The Buy To Let Equity Loan helps customers gear up their buy to let borrowing whilst keepintg their monthly outlay low. Applicants can borrow up to 20 per cent of the property value for any legal purpose. It’s a second charge loan so there is no need to change the existing mortgage and most importantly, there are no monthly repayments or additional stress tests on the rental income! The loan obviously needs to be repaid and this is after a maximum ten year term, along with a share of any growth in property value over the term of the loan. This is particularly useful to those looking to raise funds from existing buy to let properties already on attractive mortgage rates, to purchase further properties. Or to those looking to reduce existing mortgages and thus increase current rental yield returns. Remember there are no monthly interest payments on this 20 per cent borrowing.
10. What are the key industry issues set to affect investors over the next year?
This is a difficult question to answer as none of us can readily predict what is around the corner for the UK financial market. Most realise that rates need to rise. Some are predicting that we might see a small rise over the next twelve months, but no one can really say when! In the meantime, the good news is that more lenders are looking to enter the market and this will create competition in terms of both rate and criteria and this can only be beneficial for the end consumer.