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Buy-to-let mortgages are notoriously more difficult to secure than your standard agreement. This is predominantly down to lenders viewing this type of mortgage as riskier, due to the unpredictability of rental income and potential periods of inoccupancy.
It seems that the hurdles which potential and existing landlords must jump through in order to secure a buy-to-let mortgage have increased further, according to recent market analysis.
The research has shown that harsher stress testing on buy-to-let mortgages, combined with the tapering of mortgage interest tax relief, has made it more difficult and less appealing for some landlords to get a mortgage. This is particularly true in lower yielding areas, such as London, where landlords tend to have bigger mortgages.
The knock-on effect of this tighter climate is an increase in the number of cash buyers on the market. The analysis revealed that in 2018 a higher proportion of landlords in London purchased with cash, often raising the money by re-mortgaging other assets. In fact, the proportion of landlords purchasing buy-to-let homes in the capital with cash rose from 33 per cent in 2017 to 48 per cent in 2018.
While London presents unique challenges to buy-to-let landlords, and buyers in general, the overall landscape – tax and rule changes aside – still presents opportunities, albeit at an increased cost. According to the latest figures, the number of buy-to-let products on the market has risen to a 12-year high. In fact, landlords can pick from a range of 2,162 buy-to-let mortgages. This is the widest choice available since October 2007, when there were 3,305 products on the market.
While there are few signs of a decrease in the cost of these mortgages – the average two-year fixed-rate buy-to-let mortgage rate has increased by 0.20% to 3.12% since September 2018 – by using the right approach, landlords can still secure competitive mortgages in more high-yielding locations, with rental growth nearly doubling between January and February this year. So, if you’re a first-time landlord, what do you need to know?
- You must already own a home, either outright or with an existing mortgage.
- You must fit the age criteria – usually lenders set an upper age limit of either 70 or 75. This refers to the age that you will be at the age of the mortgage term. As most mortgages are on a 25-year term, you’ll be in better stead to secure a buy-to-let mortgage if you’re under 45-years-old, although this isn’t always the case.
- Buy-to-let mortgages are offered on an interest-only basis, meaning you don’t pay anything each month, but the capital debt – the initial money that was borrowed for the mortgage – is cleared at the end of the mortgage term.
- Rent is charged at a higher cost than the mortgage repayments, but many landlords make their profit by selling the property at the end of the mortgage term.
- There are additional fees that you’ll need to factor in if you’re considering becoming a landlord, such as rent insurance, landlord insurance, letting agents’ fees, and more – and you’ll need to plan for times when the property is unoccupied, or if repair bills need to be paid.
“By using the right approach, landlords can still secure competitive mortgages.
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