Review your Buy to Let mortgages on a regular basis
Doing this could save you tens if not hundreds of thousands of pounds. Mortgage rates fluctuate and banking and lending changes fast. New products and providers are coming into the market on a regular basis and some change their products as often as every three months, meaning lenders are competing for business.
So, you may also find that, while the finance you have at the moment was the best you could get a few years ago, there’s now a better option. If you haven’t reviewed your property finances recently, get in touch with us for a free consultation.
You might think a reduction of a few percent wouldn’t make much difference to the cost of your mortgage, but it really can, particularly if you’ve got several properties.
According to the Money Advice Service site (sponsored by the Department for Work and Pensions) if you have £175,000 mortgage left to pay over the next 20 years and you can reduce the mortgage rate from 5% to 3%, you would save £1,728 per year. If you own several properties this kind of saving could make a real difference to your property portfolio’s profitability.
Example monthly repayment saving if switching from a 5% to a 3% deal:
Monthly payments on
£175,000 at 5%
Total monthly payment
|£1,115||£971||£144 a month or £1,728 a year|
Think twice before you buy with cash
When you invest with cash, the benefits are that there’s no risk of repossession and you get to enjoy all the income you earn – minus costs. However, you’re unlikely to maximise your returns, particularly if you invest with cash for the long term.
When you own property with a mortgage, as prices rise you get to keep all the increase in equity (less tax). That means you benefit from the growth on your own invested capital and the growth on the bank’s money.
Of course, having a mortgage means you’ve got the additional cost of monthly repayments but, if you buy right, the rental income should more than cover it, meaning it’s not costing you anything to quadruple your equity over time - and the extra equity should outweigh the reduced monthly profit.
As everyone’s situation is different, 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 is a clear benefit to leveraging the bank’s money.
Use a broker rather than going direct to the lender
That’s chiefly because 75% of lenders only offer their Buy to Let mortgages through a broker, such as Embrace Financial Services. So, if you’re currently working directly with a lender, it’s well worth taking some free initial advice to check that you’re not missing out on a better or more suitable product.
There’s also the matter of the application process and each lender’s criteria for offering a mortgage. Some take a negative view on flats, especially if the property is over 4 storeys high or a conversion, others don’t like Houses in Multiple Occupation or company lets and some lenders won’t let you rent to tenants on benefits. Then there’s you: your age, salary, type of employment, etc. will all affect a lender’s decision on whether and how much they’ll lend to you.
And remember, if you’ve currently got three properties and you’re planning to buy more, you’ll be classed as a ‘portfolio landlord’. That means lenders will ask for a lot more information and the mortgage application process will take longer.
Given all these different factors, by far the best way of ensuring your application is right first time and has the best possible chance of being successful is to use a broker who is familiar with the latest criteria.
Remember the best rate might not be the right mortgage for you - we’d all love to be on the ‘best’ rate but, as a broker, when we’ve done our due diligence on your behalf, the best deal for your circumstances may mean you don’t get the best rate because there are so many things that affect your finance costs. For example, if you want to:
- Have the mortgage beyond the age of 75 - not all lenders allow this
- Let your home to a family member, now or in the future - not all lenders will be happy with this
- Change the type of let to a HOUSE IN MULTIPLE OCCUPATION – you’ll need a specialist product
- Covert a larger investment property into flats or bedsits – again, not all lenders will finance this
- Sell part of the land that belongs to the property, which could affect the capital value and reduce the number of deals now available to you.
You also have to assess the benefit of time-limited discounts that might be available and take into account the overall cost of the mortgage. All in all, it’s a complicated calculation, so it’s important to take professional advice to make sure you get the most suitable product overall, rather than simply focusing on the lowest interest rate.
Can we help you?
Whether you’re looking for a new mortgage or to re-mortgage a property or portfolio, if you want access to thousands of deals from a comprehensive range of products, we’d love to help. Simply call your local Davis Tate branch to make an appointment with one of our Embrace Financial Services advisers or complete our enquiry form online and we’ll be in touch. An initial consultation is free of charge and you only need to pay us if you decide to take our advice.