So you have your deposit, or maybe you are wondering what size deposit you require based on the price range of the property you want to buy as an investment. It’s time to look for a mortgage!
To find the best mortgage you should start by talking to your bank, as banks often have favourable mortgage products for their customers. I would then recommend comparing any products your bank offers you, with a reputable buy-to-let mortgage broker who works with investment property mortgages only.
I mention a mortgage broker who specifically deals with buy-to-let mortgages only, simply because they will be more knowledgeable with the buy-to-let market. A broker who claims to be able to provide both residential and buy-to-let products, isn’t going to have the time to keep up with all the frequent changes to both markets. You want to do all you can to avoid agreeing to a mediocre product to fit your requirements.
How About Looking For A Buy-To-Let Mortgage Yourself
It is easy enough to look at the types of mortgages that are available by jumping online and searching through Google. There are hundreds of mortgage lenders, who all have a number of mortgage products offering different interest rates, fees and terms, resulting in thousands of mortgage products.
You will see some very attractive interest rates and loan to values (here comes the but), but, it’s not until you drill down to the finer detail that you may find the mortgage will not meet your needs or that you will not be eligible for that particular product.
Each mortgage product will have its own set criteria which will need to be met by the applicant. The details of which will not be clear at first glance when searching online yourself. When using a mortgage broker, they will ask you a series of questions before recommending any lenders to you, so they can eliminate the lenders that will not meet your requirements from the start, and thereby saving you time.
Using A Mortgage Broker Will Most Definitely Save You Time
So instead of shopping for a mortgage, I recommend shopping for a mortgage broker. If you have time, I would also recommend finding a broker who is also an investor themselves. Why? Because they will be able to relate to your requirements and goals.
They will have first hand experience of what it takes to be a successful investor, and over time, you will build a relationship were the discussions on investing may progress to other areas outside of mortgages.
All brokers will receive a commission from the lender for selling their product and they may also charge you a fee (typically £500 at the time of writing), but don’t let this put you off if the mortgage product they are offering works for you.
The brokers fee shouldn’t be paid until the mortgage lender has released their funds and you have control of the property; known as completion. If a broker requests a fee from the start, I would kindly decline.
Are There Different Types Of Buy-To-Let Mortgage Brokers?
Yes. There are 3 types of brokers:
3. Whole of Market
Although the tied and multi-tied brokers are limited to the amount of lenders they can offer you, they may have the advantage of being able to offer you exclusive deals and incentives with their lenders.
Brokers who work with the ‘whole of market’ will have access to far more mortgage products as they are not tied to any lender(s). It’s important to note that they cover enough lenders to be ‘whole of market’ brokers, but they won’t be able to offer you products that are only available to lenders who work with ‘tied’ and ‘mulit-tied’ brokers.
If you don’t have the time to find and meet with a broker, I can recommend London & Country. They have a department of brokers who specifically deal with buy-to-let products, and you will be introduced to a dedicated broker that will assist you with your application through to completion.
Their services are completely free, whether you sign up to a mortgage through them or not, and they offer a comprehensive range of mortgages from across the market. I recently used them to refinance one of my buy-to-let properties and I was very happy with the product and service I received. (Hi Dan, How are you doing? Give me a call!).
Before actually applying for a mortgage, a suitable qualifying lender will be matched to your needs and your broker will seek to pre-approve you. If successful, an Application in Principle (AIP), and sometimes called a Decision in Principle (DIP) or a Lending Certificate, will be provided to confirm that the lender is prepared to lend to you.
At this stage, your will be considered as a serious buyer. Estate agents will often ask if you have lending in place before arranging any property viewings and you will be able to provide them with your AIP. It’s important for them to know that you’re a credible buyer especially when passing any offers you may make to their clients.
An AIP is generally valid for 90 days. If you don’t start a mortgage application with the lender within the 90 days, you will simply need to request to be pre-approved again, or in certain instances, they may offer you a 30 day extension.
So, now is the time to fine tune your research data before arranging any property viewings.
What Type Of Mortgage Is Best For An Investment Property?
There are a number of factors to consider here. Firstly, you need to ensure that you have the correct product for your investment property. Will your tenants be a family? A group of students? or will they be short term tenants staying as part of a holiday? These are just a few examples of the types of tenants you may be looking to accommodate.
This is also a good example of one of questions a mortgage broker will ask you before he recommends any mortgage lenders or products to you.
You also have the important decisions of choosing between a Fixed, Tracker or Variable Rate, AND also a Repayment or Interest Only mortgage. I have written an article that explains the advantages and disadvantages of Repayment and Interest Only mortgages, and the type of mortgages I use for my buy-to-let properties.
Can I Borrow Money Against My House To Buy Another Property?
Yes, it is possible. If you have equity in your home or another property in your name, you may be able to borrow money and release some cash to use as a deposit to buy a rental property. This is a common method often used by property investors and landlords to help grow their property portfolio.
Releasing equity from your own home can work if the market conditions are right and you meet the affordability criteria with your lender. There are a couple of options that are available to you without having to sell your home which I explain in this short video:
Is It Harder To Get A Mortgage For An Investment Property?
Yes. Simply because a tenanted property is classed as a higher risk to lenders than an owner occupied property. The amount the mortgage lender will be willing to loan will depend on the rental income the investment property is likely to achieve and the amount of cash you have as a deposit.
Compared to a typical residential mortgage, a mortgage for an investment property is harder. The preparation will likely take longer and meeting the lenders criteria is more complex, but a reputable mortgage broker will guide you through the process from start to finish.
It’s also worth mentioning that mortgage lenders will only approve a mortgage on a property that is habitable. A habitable property requires a watertight roof, basic water and power supplies with a functioning bathroom and kitchen.
If the property requires major renovation works including a new bathroom, kitchen and heating system, the lender would still be willing to lend based on the valuation of the property at that time. The property may not have any carpets or any other form of decent floor covering for example, but it would still be considered to be habitable.
For a property that is missing a kitchen sink for example, and is classed as uninhabitable, you would need to seek other forms of funding for the purchase e.g. Bridging Finance.