Checklist for financing a Buy To Let property

October 26, 2015

Before starting your search for a suitable BTL investment, it is advised that you get your finances in order.

Unless you are “proceedable” – can prove you have cash or been approved for mortgage finance – you will not be able to put a credible offer in on a property.

Furthermore, if using bank finance, it makes sense to find out which mortgage products you as an individual have access to, as this may have a significant impact on the type of property you can invest in.

The BTL mortgage market is currently un-regulated, although it has been announced this week that the Bank of England are to be given greater powers in this area of finance.

Speaking to the Treasury Committee earlier this week, The Chancellor, George Osborne, said: “I think it’s true that, if you look historically at the UK, one of our biggest challenges has been managing credit booms and house price cycles. That’s why we created the Financial Policy Committee, in part to try to manage some of those risks.”

Osborne revealed that BoE would receive new powers sooner rather than later:

He said: “The governor of the Bank and the FPC have asked for additional powers over buy-to-let mortgages which weren’t included, and we have granted those powers”.

This announcement comes in the light of recent news that Buy to let lending continues to show a large rise compared to the same time last year according to new figures from the Council for Mortgage Lenders.

BTL purchase has showed stronger year-on-year growth than home-owner loans for for most of the year, which the CML says is in part is a market recovery response as buy-to-let lending declined more than home-owner lending during the downturn. BTL continues to represent 17% of gross lending, a proportion that has remained relatively consistent since the beginning of the year.

1. The typical highest Loan To Value is 75%, meaning that you will require a 25% deposit.

2. You will need a clean credit rating

3. You must be over the age of 18.

4. You should be able to demonstrate some income – typically over £25K per annum.

5. It helps if you are on the Electoral roll.

6. Many of the lenders will require you to be a home owner.

7.  If you are self-employed, you will typically need to provide a lender with three years of accounts.

8.  The rental income from the property you are considering purchasing will have to cover the interest only monthly mortgage payment by 125%.

Due to tax changes for landlords announced in the Summer Budget 2015, it is expected that many more landlords will start to buy investment properties in a limited company structure.

Research from Mortgages for Business showed that in the first half of 2015, 23% of buy-to-let lenders offered products to limited companies, up from 21% in the second half of 2014.

Limited company buy-to-let mortgages now account for 12% of all buy-to-let products.

Limited company products cost on average 0.8% more than products for individual investors.

For both BTL mortgage in your own name, or through a limited company, the lower loan to value that you take out, the better interest rate you will be able to secure. Most people believe that gearing your investment to around 60 – 65% is a safe level.

It is recommended to speak to a reputable mortgage broker to find the best BTL mortgage product for your circumstances.  There is a very wide choice and High Street banks do not necessarily have the best products.

Remember to check out our Investor List for properties suited to investment, some with tenants in situ which means a rental income is achieved from Day 1. Even better a number of properties are on the Northwood Guaranteed Rent service which means that their rental income is guaranteed each and every month on an ongoing basis.

We also have a Buyers Guide for those interested in investing in a Buy to Let property.

Northwood is one of the largest and most recognised lettings agents in the U.K. and the leading supplier of Guaranteed Rent to give landlords complete peace of mind.

Find us on Twitter @northwoodUK or visit our YouTube Channel.

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