How are you financing your Buy to Let and could it be better?
With hundreds of different Buy to Let mortgages available, it’s not always easy to work out whether you’re on the ‘right’ deal.
If you’ve been letting property for decades, do you regularly review your mortgages or only switch products when you have to? Are you about to make your first Buy to Let investment and aren’t sure where to start? Maybe you’ve bought with cash or are thinking about it.
Whatever your situation, how you choose to finance a property investment can make or break your investment returns. You might not think changing your mortgage deal would make much difference, but the reality is that reviewing it regularly and switching rates could save you tens, if not hundreds of thousands of pounds.
Use a buy to let mortgage calculator to help review.
This month, we’d like to introduce you to our new mortgage services brand partner, Embrace Financial Services. Headed by Your Move Managing Director, Oliver Blake, the management team is made up of long-standing LSL group personnel, who are working hard to ensure we continue to offer our mortgage clients the best possible service.
So, here are five top tips from Embrace’s Operations Director, Simon Cox, on how to check you’re financing your Buy to Let in the best possible way.
1. Invest cash or buy with a mortgage?
The benefits of investing with cash are that there’s no risk of repossession and you get to enjoy all the income you earn – minus costs. On the other hand, it’s harder to maximise your returns, especially if you invest with cash long term.
The big benefit of owning property with a mortgage is that when prices rise, you get to keep all the increase in equity (less tax). Getting growth on your own invested capital and growth on the bank’s money can give you a much better rate of return.
Of course, with a mortgage you’ve got the additional cost of monthly repayments but, if you buy right, the rental income should more than cover it. For a more detailed example of how this would affect your property or portfolio, it’s worth contacting your mortgage broker.
Everyone’s situation is different, so it’s essential to consult a financial advisor and a property tax specialist before making a decision about how best to invest. But for many landlords there’s a clear benefit to leveraging the bank’s money.
2. Choose a broker or go direct to a lender
This is easy to answer: use a broker. 75% of lenders only offer their Buy to Let products through a broker, such as Embrace Financial Services. So, if you got your current mortgage by going direct to a lender, it’s well worth taking some free initial advice to check you’re not missing out on a better product.
A broker can also be a huge help when it comes to the mortgage application. Lending criteria has tightened in recent years and lenders have different views on what they do and don’t like, for example, some view flats negatively, especially if higher than four storeys or a conversion. Some don’t like Houses in Multiple Occupation or company lets and some won’t let you rent to tenants on benefits. Apart from property criteria there is who they will lend to which is based on age, salary and employment. All this will affect a lender’s decision on whether to lend to you and how much.
Bear in mind if you are considered a ‘portfolio landlord’ because you have three Buy to Lets with mortgages and are planning to buy more, you will need to provide more information to apply for a mortgage and a broker can be very helpful during this process.
Taking all that into account, it really does make sense to use a broker that’s familiar with the latest criteria and can make sure your application is right first time.
3. Is the best rate really the right mortgage?
Most people ask for the ‘best’ mortgage rate, but, as a broker, once we’ve done our due diligence on your behalf, the best deal for you might not actually translate into the best rate.
That’s because there are so many things that affect your finance costs whether it’s owning a property with a mortgage when you are over 75 or letting to a family member. Then there are different types of lets from Houses in Multiple Occupation to investing in converting property from a house to a flat for example. In addition, although a ‘discount’ sounds great initially, it might cost you more in the long run.
Working out the right mortgage can be a minefield, so do take professional advice to get the most suitable product overall – rather than just focus on the lowest interest rate.
4. New lenders and products entering the market
Banking and lending changes fast, with new ones entering the market and mortgage products changing sometimes in a matter of months.
So, even if you thought you’d got the best possible deal a few years ago, it’s possible there might be a better option available now. If you haven’t reviewed your property finances recently, do get in touch with us for a free initial consultation.
5. How much difference could switching make?
Shaving a few % off your mortgage rate doesn’t sound like it would make much of a difference, but it really can, especially if you’ve got several properties.
The Money Advice Service government website states that over the next 20 years if you have £175,000 of your mortgage outstanding and you shave your mortgage rate down from 5% to 3% you would make a cost saving of £144 a month or £1,728 a year.
Example monthly repayment saving if switch from 5% to 3% deal
|| Monthly payments on £175,000||| Monthly payments on 175,000 at 3%||| Cost saving (after any remortgage fees)*|
|£1,115||£971||£144 a month or £1,728 a year|
At Embrace Financial Services, we currently have access to a variety of discounted rates for Buy to Let purchases and remortgages, so if you would like an initial consultation free of charge, speak to one of our Embrace Financial Services advisers call 01392 453568 to discuss your circumstances or complete our enquiry form online and we’ll be in touch.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.