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Legal and financial aspects to buy to let services



Financial services:
 
- Economics of Buy to let
- Market appraisal and demand
- Tenant supply
- Financial considerations
- Planning 'Gain' and Development
- Mortgages
- Insurance
- Legal

Mortgages

Buy2LetExpert are not mortgage brokers but have worked with such professionals for many years from the days long before buy to let finance was available. Obtaining the correct mortgage is very important. This is because the potential return to a buy to let investor is both income (in the form of rent) and capital (in the form of house price appreciation). However only the rent component pays the mortgage and bills!

Consequently, an investor in their early years may have much of their income swallowed up in mortgage payments so their net cash income is low or even negative! Sure, the asset price may have risen but that is not cash. It is because the cash component is often so tight that Buy2LetExpert recommend being extremely careful with mortgages starting with analysis of different mortgage types summarised as follows:

  • Variable Mortgages. Typically the bank or building society will publish a 'standard variable rate'. This rate would normally track base rates but may not if the bank is not doing so well!
     
  • Variable “tracker” Mortgages. Such mortgages vary broadly with some base indicator. The indicator may be LIBOR, Bank of England base rates or some other measure. As an example the mortgage may be priced at x% over bank of England base rates.
     
  • Fixed Rate Mortgages. The mortgage rate (and repayment schedule) is fixed for a predetermined period (2 to 5 years is typical). This can be attractive as mortgage repayments remain exactly the same for the fixed term regardless of what happen to interest rates and the economy. Fees can be high.

Most mortgages either fall into one of the above three categories or are a combination of all or some of them. What kind of mortgage is best depends on individual circumstances. Generally, as described above, cash flow may be an issue for a new investor. A 50% or more increase in mortgage repayments may cripple the investor, especially in the early years where rents remain low. Consequently Buy2Let Expert would seek a 5 year fix. It may well be cheaper to go variable and risk the 50% plus mortgage repayments but looking at the 5 year fix as an insurance policy is the way to think. Like all insurance, it is not free, but is there to protect just in case rates rise alarmingly. Economists, analysts and others have extremely poor track records in predicting interest rates. There are simply too many variables and too much uncertainty with all the variables.

Mortgage selection depends very much on the client. Buy2LetExpert understands that different buy to let investors may require different finance solutions. It is important to establish the best kind of mortgage product for the business before the contacting the mortgage broker. Some mortgage brokers are incentivised by commission or may not have the full range of products available to them to sell and this may cloud the choice of investment. Consequently we suggest to first consult Buy2LetExpert and then, following this, establish contact with a competent mortgage broker. There are numerous quality brokers and an even greater number of poor brokers. Buy2LetExpert have dealt for almost 20 years with two main brokers www.mothergoosemortgages.co.uk and mortgagesforbusiness.co.uk who we have always found to be fair and professional.

 

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Legal side to property investment

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