With the rental market continuing to be buoyant, and with no signs of declining, the mortgage market is active as lenders recognise the huge demand for Buy to Let (investment property) mortgages. These can be from a first time landlord, right through to the experienced House of Multiple Occupation (HMO) / Student Let portfolio investor. Deposit requirements can be as low as just 15% and as this sector has also recently been through a price war, rates are competitive (some now sub 2%) and may also come with packaged deals, such as free valuation and free legal costs.
But with so many lenders now in this sector, rates may not remain the main area of competition for much longer! Some lenders are also reviewing criteria in order to attract new business. Many lenders historically would not allow first time landlords, anyone earning an income less than £25k per annum, those who have more than ten properties, or those who may have had previous blips on credit history, to give you a few examples.
However, we have seen recently that criteria and attitudes are being relaxed and lenders are having to compete to attract more business. There are also a large number of new entrants to this market including Foundation Home Loans, AXIS Bank, Fleet Mortgages and Pepper Home Loans to name just a few. Each have launched their own niche propositions and are looking to attract a certain type of Buy to Let customer.
Buy to Let properties will often provide a modest monthly return over and above the mortgage payment. The additional amount can be used to supplement income, or, with flexible mortgages, can be used to “overpay” the mortgage and reduce the term.
Most lenders in this sector will require the rental income to exceed the mortgage payment by up to 125%, normally at a marginal rate of circa 5% and, after costs such as managing agents, this should leave some spare cash to cover repairs, maintenance and landlords insurance. It should also enable a fund to be established to cover the mortgage payment in the event that there is no tenant in situ for a while. Remember that, whatever the deal, lender terms and conditions will always apply.