Taking your first steps in the buy to let marketplace can be a daunting prospect. However, with the right advice, the right mortgage and the right property; there’s no reason why anyone can’t become a successful property investor.
Start by talking to local lettings agents or property managers. They will be able to give you advice on what types of properties are most in demand, the most desirable areas for tenants and what you can expect as a monthly rental income. Remember you’re talking to the experts so don’t make the mistake of thinking you know best. If you intend to invest in a university town get in touch with the student accommodation officer.
Once you have a firm idea of the type of property you are looking for; you’ll need to turn your attentions to finding the right buy to let mortgage. As with all aspects of the financial services industry, the key is to do as much homework as possible. High street banks and the money pages of the Sunday broadsheets still provide fertile hunting grounds, but you’ll find some of the best deals with the help of an online broker.
As a rule of thumb you’ll find that most lenders will offer up to 85% with the buyer paying a 15% deposit. Hence, if you want to purchase a property for £200,000 you’ll need an initial lump sum of £30,000. You’ll also need to factor in the broker’s fees, solicitors fees and valuation costs.
An experienced broker will be able to help you decide which of the following mortgages is most suitable for your needs:
Standard Variable Rate: With a SVR the percentage rate is controlled by the lender and can go up or down to reflect changes in the Bank of England’s base rate. One criticism of SVR mortgages is that lenders pass percentage increases on faster than decreases
Fixed Rate Mortgage: If you are a cautious investor, who likes to have tight control over your monthly outgoings, a fixed rate mortgage might be the answer. Safe from the fluctuations of the economy: you won’t loose out if there’s a downturn, but equally you won’t be able to take advantage of interest rate cuts
Capped Rate Mortgage: Capped mortgages are similar to SVR, but have a fixed limit above which the interest rate cannot climb
Discounted Rate Mortgage: Discounted mortgages offer borrowers a reduced rate for a set period (typically between 18-24 months), before switching to the SVR
Base Tracker Mortgage: Tracker mortgages are tied (a fixed percentage above or below) to the Bank of England’s base interest rate.
Because rates vary from lender to lender it’s a good idea to shop around. Remember that brokers often have access to preferential rates that aren’t available to the general public. If you decide to use a buy to let broker, make sure that you choose one that charges fees once the mortgage has been successfully arranged.
Mike Stepney is part of the team at The Money Centre . Click for more info on the best buy to let mortgages .