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Are you looking for the best buy to let mortgages with the lowest rates payable?
Need to calculate repayments on-line? Not sure how much you can borrow? These
are all questions that you may well be asking yourself if you are looking
for the best buy to let mortgages.
Finding the right buy to let mortgage is crucial to your success as a property
investor. Unlike other forms of investment, a lot of the money you put into
a buy-to-let property is likely to be borrowed. Over the last few years,
the buy to let mortgage market has boomed, and borrowing money to invest
in this way has become easier than ever. There are a number of different
buy to let mortgage products available from fixed rates, discounted variable
rates, discounted rates and so on. Different products may be suitable for
different investment properties. Finding the cheapest buy to let mortgage
may not always be the best option so there are a number of things to consider
when deciding which buy to let mortgage is best. For example:
- A lender may offer a very cheap buy to let mortgage product which may carry
a very attractive rate for a short while, but look at the small print. If
you are then tied in for an extended amount of time at a much higher rate,
then you need to calculate whether or not this is the best buy to let mortgage
for you in terms of your cashflow as a landlord.
- A fixed rate with no extended tie would enable you to know exactly what
your monthly repayments are so that you can calculate your profit/loss for
that set fixed term.
- A discounted variable rate can be very attractive when the base rate is
in the favour of the landlord and buy to let investors. Monthly repayments
will fluctuate according to the decrease/increase in the base rate or LIBOR
- Some of the best buy to let mortgage products may be discounted variable
rate products that also offer the option of a droplock facility. A droplock
facility on a buy to let mortgage means that for a fee, you can decide to
switch to a fixed rate with that same lender.
How Do I Know How Much I can Borrow
This will depend on the lender and the buy to let mortgage products available
as this can vary. Some lenders may set minimum salary levels whereas others
may need verification that you are an experienced property investor. Others
may not be concerned with the level of income providing that the rental income
is sufficient. In general, most lenders will calculate the maximum borrowings
based on either 125% or 130% cover. This 5% can make the difference as to
whether you can borrow the full 85% or less.
The rent that a landlord receives generally has to be either 1.25% or 1.3%
more than the interest payment of the mortgage. For example if you were looking
to purchase a buy to let property at £100,000 the maximum loan you could
achieve is 85%. Assuming an interest rate of 5% this would make the interest
only monthly repayment of £355. Therefore the rental income that can
be achieved must be £443. This figure being 1.25% times the rental amount.
To get an idea of how much the monthly repayments would be on a buy to let
property you are considering then its worth trying an
online buy to let mortgage
calculator to work out the repayments immediately.
However it is very important that you get the correct guidance with your
finance. Questions that are worth considering when finding the best buy to
1. Do they have access to lots of different products in the market place?
2. Do they have the ability to create a long term property development strategy
3. Are they able to secure Exclusive Products?
4. Are they able to arrange mortgages within 10 working days?
Most lenders will offer a maximum loan of 85% against a buy to let property
requiring you to fund at least a 15% deposit. But this does depend on the
rental income that can be achieved from the investment property. The buy
to let mortgage industry is very competitive with new products being launched
on a very regular basis so it is worth keeping an eye on the best deals around.
Some brokers may charge a brokerage fee up to 2% to arrange the finance for
you but dont let this put you off because if they do have the ability
to secure exclusive products for you, it could be very beneficial to your
cashflow as a landlord. Plus, if they are able to reach formal mortgage offer
stage in a very short space of time, this could result in you being able
to secure property at very competitive prices if you have the ability to
tell the vendor that you can have the deal completed within a matter of a
Buy to Let Mortgage Types
Variable rate buy to let mortgages
This is the lender's own mortgage rate and one that is subject to change
whenever the lender chooses which is at the same time of base rate changes.
This means that if you are on a lenders standard variable rate buy to let
mortgage product then your monthly repayments will increase or decrease
accordingly although they very rarely pass on the full percentage reduction
to the client. This type of product does also allow the lender to change
the rate even if there is no change in the Bank of England base rate. So
if you are looking for something a bit more palatable why not look at your
Discount buy to let mortgages
For a set period, the lender offers a reduction on its SVR (standard variable
rate). Lets say, it might offer a discount of 1.5 per cent over three
years. However much the SVR (standard variable rate) increases or decreases
during the discount period, you always pay a rate 1.5 per cent lower.
Stepped Discount buy to let mortgages
Its also worth considering stepped discount buy to let mortgages, where the
level of the discount reduces after a set period. For example, you may be
offered a 1.5 per cent discount for a year, followed by a 0.75% per cent
discount for the second year.
Fixed-rate buy to let mortgages
Regardless of the (SVR) standard variable or changes in the base rate, this
kind of buy to let mortgage offers a fixed interest rate for a set period.
The monthly mortgage repayments will remain the same giving the property
investor the knowledge of what their monthly outgoings will be for a set
Capped-rate buy to let mortgages
The capped-rate buy to let mortgage offers a limit as to how high the interest
rate can go. The rate you pay can move up and down below that level but never
go beyond it. Your payments would reduce if there were any base rate decreases.
Drop-lock buy to let mortgages
This is a feature that is included in some buy to let discounted mortgages.
Initially you decide to opt for a discounted product but for a small fee
you have the option to drop into one of that lenders fixed rate products.
At which time you would then be bound by the terms of the new fixed rate
Tracker buy to let mortgages
Tracker products can be a good option for buy to let investors. Tracker products
offer a margin over the base rate for certain periods of time. Some will
offer a buy to let tracker product which tracks the base rate plus a margin
for a few years whereas recently there are more products coming on the market
where they will track the base rate for the life of the loan. Providing it
is a low enough margin over the base rate and the base rate remains at a
comfortable level, this can be particularly cost effective to a buy to let
landlord as it can avoid the necessity for regular refinancing and the costs
involved in the exercise.
Why Not Learn more about
buy to let and find
out how you can start your buy to let property portfolio.
Jennifer Tweed is the founder of buytolet4sale.com, one of the UK's first
property portals dedicated to all types of investment property for sale and
everything you should need for your sale and purchase. Learn more about
buy to let
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