Terry Lucking owner of one of Cambridgeshire’s most successful letting agencies and buy to let advice centres predominately covering Peterborough and Cambridge looks at what you should do when searching for a new buy to let mortgage.
Things that are likely to effect the mortgage offer:
a) Gearing ratios between the annual rent and the annual interest payments
b) Lenders calculating the loan offer against a higher interest rate than they are going to charge
c) A high arrangement fee
d) Early repayment penalties
e) Lenders standard variable rate
Gearing ratios between the annual rent and the annual interest payments
Lenders have different requirements. Typically lenders are currently looking for the annual gross rent to be 30% greater than the annual mortgage interest. Terry feels you shouldn’t be put off by this. A property in a busy rental area should generate enough annual rent to prevent this becoming an issue.
Lenders calculating the loan offer against a higher interest rate than they are going to charge
Some lenders use a higher interest rate for their annual rent to annual mortgage ratio checks. This may result in the loan offer being less than you applied for. Terry suggests checking the lenders terms carefully before paying for a valuation.
A high arrangement fee
These fee vary wildly from as little as a few hundred pounds to 3% of the loan. Unless the borrower opts to pay the arrangement fee at completion of purchase the fee will be added to the debt you owe the lenders. If it is added to the debt you will pay interest for the life of the loan. A 3% arrangement fee for the life of a 20year mortgage on a £100,000 loan will cost you another £3,000 in lost profit if the interest rate averages just 5% through the term of the loan.
Early repayment penalties
These penalties vary significantly depending on the loan. It is really important you check what the lenders terms are so you are not caught out or prevented in moving to another mortgage provider or re mortgaging when property values have increased enough to enable it.
Lenders standard variable rate
Remember 2007?? Bank of England base rates varying between 5.25% to 5.75% with lenders standard variable rates between 5.5% and 6.5%. Now in 2013 we still have 0.5% Bank of England base rate yet lenders standard variable rates have changed very little – in fact some have increased! Terry advises you check the terms carefully so if your lender hold on to higher than average standard variable rates after any fixed or discount term you aren’t trapped by high penalties.
So before committing to a new loan spending some time carefully checking you not being getting locked into to something you may come to regret.
Free Advice
Terry Lucking is the owner and director of Belvoir Cambridge and Belvoir Peterborough. Terry and his team are willing to help buy to let investors and landlords maximize their rental income. Terry offers a free one to one review and free pre purchase properties visits to help ensure you are selecting a sound investment.
Belvoir Cambridge and Belvoir Peterborough are accredited and regulated agents. Members of ARLA, Safe agent, Safeagent and the Property Ombudsman. It is a requirement for a member of ARLA and Safe Agent to have Client Money Protection and have their accounts independently audited annually.
For more information or to ask Terry a question send an email to terry.lucking@belvoirlettings.com
