Bespoke Mortgage Advice
What is a Buy-to-Let (BTL)?
A Buy-to-Let property is when you purchase a property with the intent of treating it as an investment and subsequently renting it out for profit. A lot of investors look to use mortgage finance to purchase these properties. The two main repayment options are interest only mortgages and capital repayment mortgages.
Capital repayment mortgages
A capital repayment mortgage is when the mortgage repayments are made up of part interest and part capital. At the start of the mortgage the payments are made up of mostly interest and over time as capital decreases, so does the interest so by the end of the mortgage term, the bulk of the monthly repayments will go towards paying off the capital.
Eg. If you borrow £250,000 over a 25 year mortgage term and the interest rate is 3.5%, your monthly repayments will be £1,251.56. This means that over 25 years, the capital of your loan is £250,000 but you also repay £125,467 in interest.
Interest only mortgages
An interest only mortgage enables you to repay solely interest on the amount borrowed, as opposed to interest and capital. This means that at the end of the mortgage term the capital (amount used to purchase the property) is paid off in a lump sum at maturity either through sale of the property or savings.
Most landlords choose to have their buy-to-let mortgages on an interest-only basis as this increases liquidity enabling them to invest it elsewhere.
Using the same example as above which is based over a 25 year term and an interest rate of 3.5%, an interest only mortgage would have monthly repayments of £729.17 but at the end of the mortgage term, you would have a capital balance of £250,000. Over the 25 years period, you will have paid £218,751 in interest.
Why finance your BTL Property?
The simple answer is leverage. Leveraging is where you borrow money to enhance your investment return.
An investor who has £100,000 could use his money to buy a property for £100,000 assuming an appreciation rate of 5% over 25 years he would have £338,000 a profit of £238,000. Let’s also assume the rental income is 5% of the property value, then this investor after 25 years would have an income of £16,900 per annum.
However, by taking out a mortgage an investor could purchase 4 properties with their £100,000 using a deposit of £25,000 for each property and a mortgage to finance the remaining amount. As a result, they now have 4 properties worth £100,000 each, or £400,000 in assets with the same £100,000 investment. Assuming a capital appreciation rate of 5% over 25 years, those 4 properties could now be worth £1,354,000 a profit of £954,000! As above let’s also assume the rental income is 5% of the property value, then this investor after 25 years would have an income of £67,700 per annum!
Can I remortage my exisisting properties?
Yes, with the property market and lender criteria ever changing it is important to review your existing mortgages to find out whether you are getting the best deal or if there is a better solution for you. Those that are on a variable rate are advised to speak to one of our brokers.
Remortgaging to release equity is also a popular way to increase liquidity and access money as a cash lump sum or drawdown facility. You can leverage the value in your asset to put it towards further properties growing your property portfolio.
What is Loan to Value (LTV)?
Loan to value (LTV) is the loan amount measured as a percentage of the value of the property. For example, if a property is valued at £100,000 and you have a deposit of £25,000, then you would need to borrow £75,000. The amount borrowed is then divided by the property value, this gives you the LTV, in this case £75,000 / £100,000 is an LTV of 75%.
Can I get a high Loan to Value mortgage?
Yes, there are lenders who can offer 100% Loan-to-Value mortgages. Each case is unique and different and our team of experienced brokers will be able to source the most competitive solution for you.
What if my case is complicated?
Whether you are self-employed, an Expat, Foreign National or do not have a regular income, our team of brokers have a wealth of experience dealing with complicated clients and are able to work closely with the bank’s underwriters to ensure a smooth and stress free process for you.