Obtaining a buy-to-let mortgage or financing capital for property investment is a dynamic process. Things have changed so drastically in the past several years that it has seemed like a roller coaster, and the rate of change shows no signs of slowing down in the next years.
Your Credit Score
The importance of having a clean credit file cannot be overstated. If the applicant has bad credit, lenders have less flexibility in approving a buy-to-let mortgage than they would in approving a home loan.
Some minor previous concerns, such as a missing credit card or store card payment, may not be a concern, but defaults, County Court Judgments (CCJs), and missing mortgage payments may.
It’s also a good idea to stay away from payday loans. Lenders dislike this kind of financing since it implies that the customer isn’t managing their money wisely or has a little reserve of cash accessible in the event of a worst-case situation.
If you want to build a property portfolio using mortgages or other types of lent funding, be sure your credit file is in order.
2 Points on Buy-to-Let Mortgage Eligiblity
A minimum income of £25k will be necessary to be able to pick from the majority of BTL lenders. There are lenders that will deal with people on a smaller income, and others have no minimum income criteria at all, but a £25k income will guarantee you have access to the bulk of the market.
How Many Properties You Already Own
The amount of mortgaged buy-to-let properties you possess may influence which lenders are willing to lend to you. Some lenders, for example, may reject an application from a landlord who already has 10 buy-to-let mortgages.
Because this amount varies from lender to lender, the best thing to do is get assistance from a seasoned mortgage broker.
What is the maximum amount of money you can borrow?
The amount you may borrow with a buy-to-let mortgage is determined by the rental return. In other words, the amount you may borrow is determined by how much the lender believes you will make.
How do lenders figure out what the rental income will be?
So, as a borrower, do you need to demonstrate what your rental return is expected to be based on market comparisons? Will the lender do their own market research to estimate the probable or customary rent?
The following is how it works:
In most situations, lenders calculate the monthly payment by multiplying the amount borrowed at a preset rate of interest (5 percent in most circumstances, independent of the real interest rate of the product) by 125 percent (in most circumstances), and the rent must be more than that number.
Example of a Calculation
With a £75,000 loan with 5% interest, the monthly payment is £312.50. This is then multiplied by 125 percent to get £391. In this case, the monthly rent would have to be at least £391 to qualify for a loan of $75,000. The lender would have to be convinced that such a loan could be as near to guaranteed as feasible.
Insurance for Renters’ Protection
Buy-to-let building insurance is required to qualify for a BTL mortgage. Normally, this will be the only kind of insurance that you will need.
So, though rental protection insurance isn’t required, it’s a good idea to have it.
Mortgages with no monthly payments (Interest Only)
All buy-to-let lenders offer interest-only mortgages, which are quite popular.
Buy-to-Let Advice for Everyone
You should always retain a feeling of distance from any possible buy-to-let property as an investment. You aren’t purchasing it to live in; rather, you are purchasing it as an investment. However, it is both a cash-flow business and an asset.
The difference between the purchase price and the rent you can get is crucial, and it’s what buy-to-let mortgage lenders are looking for.
For example, instead of spending £140k on one semi-detached property that would only rent for £650 per month, it could be preferable to invest £70k on two terraced houses that would rent for £550 per month each.
You must carefully control your spending if the home requires renovations. Keep it as basic as possible, and avoid expressing your particular interests in the décor. All that is required are Magnolia walls and a functional kitchen and bathroom.
An investor must also think about the sector in which they want to invest – perform your study and due diligence. Get to know the local market as well as you possibly can. Consider the following points:
- – What is the rental yield potential?
- – What is the relationship between the yield and the buying price?
- – Is there a steady demand for rentals in the area?
- – Is there room for capital appreciation?
Before making any choice regarding a property, you must thoroughly research the region, analysing historical data such as sales, typical rentals, market improvement, and price increases.
That way, you’ll be able to tell whether your objectives are realistic.
The main message here is that buy-to-let mortgage lenders prefer to deal with candidates who have an excellent credit history and are looking for a secure investment with high returns.
So, if you want to get started investing in real estate, keep it basic and you won’t go far wrong.