Buy to Let
How does it work?
Many people see property as a good long-term investment, and if you are a landlord for the first time or an experienced landlord, we can source funding for you.
With the changes to the tax system, many landlords are moving property out of personal name and into a corporate format, typically a limited company. There can be stamp duty and capital gains tax ramifications so you should talk to your accountant.
What can I borrow?
Historically lenders have provided loans of up to 80% of the value of market value of the property, however at time of writing this is at most 75% and generally 70% or less.
There are a range of property types, starting with basic residential houses and flats and moving through to HMOs and blocks of flats. Different lenders have different appetites for the different property types.
Lenders will look at the affordability of the loan proposed, based on both the product you are taking and also their “stressed rate” typically the stressed rate is currently 5.5% and lenders are looking for 125% cover of the interest payable.
If you have more than one property some lenders look at the wider portfolio whether it is part of their lending or not, however some lenders look at just the property they are lending on.
For portfolio landlords some lenders provide a blanket facility across all of the properties, which can be good if you are planning on borrowing against the whole pot for future purposes. Other lenders will provide a facility per property which can be useful if you are planning on selling a property because it will not disrupt the wider lending position.
Lenders vary in the length of loan they provide and you should think about this carefully because the cost of having to remortgage a few times if you take cheap 1 or 2 year deals can outweigh taking a longer loan for a slightly higher rate – it’s not just the hassle of moving funders it’s potentially the extra valuation fees, legal fees and arrangement fees that are incurred.
You should consider what will happen when your initial period or initial product expires and you revert to the lenders Standard Variable Rate (SVR) which can be substantially higher than your current deal – don’t get caught out.
Lenders provide fixed and variable interest rates. Variable rates are often cheaper initially but they don’t necessarily give the peace of mind a longer–term fixed rate can give. You need to decide what is right for your mindset and how long you intend to own the property for
Most fixed rates carry penalties if you want to repay early, however many variable rate products also have these penalties too – always read the smallprint. Some products allow partial repayment i.e. you can pay up to 10% of the loan balance down each year as an “over-payment”.
Lenders will look for a first legal charge over the properties provided as security for the loan.
Typical fees will include a valuation fee, a legal fee and an arrangement fee.