How to Raise Finance for Buy-to-Let Property

Raise Finance for Buy-to-Let Property

Today’s BTL mortgage marketplace presents a myriad of products – 2-year rates, 5-year rates, standard BTL, first time landlord, limited company and more. The range of products is greater, and more diverse than ever. Having to raise finance for buy-to-let property investment is an area that is constantly changing.

Considering these changes, whether it’s your first buy to let property or you’re a seasoned investor with a portfolio, working with team of specialists around you is key to your success.

Key factors

• Work with a specialist BTL lenders. Whereas high street lenders tend to rely on computerised underwriting, specialist lending is a segment of the mortgage market offering a more personal touch dedicated to providing alternative lending to landlords- a more human approach. These lenders recognise and cater for, buyers’ more complex needs. Criteria allows for more complexity in the buying structure i.e., when there’re more than one buyer, or a third person is topping up.  Self-employment is far more widely accepted with specialist lenders who recognise the dramatic rise in self-employed status in more recent years. 
• Clean credit. A clean credit rating is vitally important as your gearing options are dramatically increased.  There is far less flexibility for lenders to look at a buy-to-let mortgage if the applicant has adverse credit than there is if it were a residential purchase. Check your status via easily accessible websites such as Experian or Equifax. Low grade issues such as credit card missed payments should not pose a problem, but County Court Judgments (CCJs), defaults and missed mortgage payments will adversely affect your credit rating.
• If the amount I can borrow is connected to rental return, how do I prove this?

Lenders work on a calculation of the amount being borrowed at a fixed rate of interest (5% in most cases) to work out the monthly payment, multiplied by circa 125%. Your rental income needs to be above that figure. Example:

• £75,000 loan at 5% Interest, £312 per month x 125% = £391.

So, the monthly rent would need to be at least £391 to be able to borrow 75k and the lender would have to be satisfied that such an amount could be as close to guaranteed as possible.

Know your loan to values (ltvs) and rates

Lichelle Samra, Prosperity Living mortgage specialist, said: “Currently the LTV in the residential market is 90%. As the Government opened this up to attract more first-time buyers, more and more lenders will lenders will continue to offer at this. Rates on this sit at around 1.2% upwards based on criteria.  For BTL for UK clients, it’s a minimum of 15% base but often looking for the flexibility of an extra 5% to give the client options with rates, which in this case start at 2.5%. For the expats and overseas investors, lenders are asking for 25% min deposit, again with the flexibility of putting down extra if they have it, with rates from 2.5% upwards. There’s no doubt that there are some good products out there but it’s about putting the clients with the right lenders.”

 Deposit

A solid 30% deposit gives you more options and more favourable rates. It’s vital to do your research, speak to a financial advisor who’s knows buy to let as he may well advise you to put other savings you may have, into your property. This can also produce a huge saving.

Timings

10-12 weeks is the current mortgage application time  

Certification

Lenders still require certification. Whilst for UK residents video calls, electronic exchange of docs will often suffice, ex pats and foreign nations are still required by the lender, to have to have a Notary certify certain documents especially when translations are required.

Interest only or repayment?

Interest only seems to be popular; it keeps the cash liquid and whether you’re a first-time buyer or expanding a portfolio it’s always lender specific. Whilst some require you earn a minimum salary others will assess it via affordability assurance scoring. Whilst interest only is attractive, clients should seriously consider re-payment mortgages.

Joe Billingham, Prosperity CEO is a firm advocate of the repayment model. “Whilst with interest only you can potentially build a portfolio quicker, then re-visit at a later date it’s important to remember that the whole objective for property investment long term should be to bring the debt down, make overpayments even, whenever you can. Ultimately, you need to get to a point where capital is paid down, so you’ve only got income. If it’s a pension provision or you’re looking to produce income longer term, the sooner you can get to a point where you’ve paid down that debt to take an oncome, or even re-gear it, but either way, this is by far the way to go if you can afford it, in my experience.”

These are just snippets taken from our brand new 6 week BTL investor workshop where this week (Week 3) Prosperity’s CEO Joe Billingham discussed mortgaging your B2L property with mortgage coordinator, Lichelle Samra.

To register for your free 6-week download, covering everything from legals, tax, mortgaging, lettings and management and secure financial planning, the course offers up to date, factual advice and information answering all your property investment questions.