All posts by Gareth Davies

Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat. Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi.

Buy-to-let property can be an excellent method of creating a long term investment for your future. It is popular with people that do not want to invest all their money in a traditional pension plan and would like to invest directly in an asset that they can see and manage themselves.

An important first step is to secure buy-to-let mortgages which are different from residential mortgages, such as for first time buyers of remortgage buyers, as the lenders look at the rental income from the property and have specific criteria for lending.

This includes a larger deposit of 25% or more of the property value and a rental income that is 125% of the interest payments at a prescribed rate which could be higher than interest rate you will pay during the introductory offer period.

It is important to ensure you have the right advice for your buy-to-let property. With independent advice from London City Mortgages we can show you the income you will need to secure a mortgage or find the best buy-to-let mortgage deal for your circumstances and make the online mortgage process easy for you.

Benefits of a buy-to-let property

A buy-to-let property can offer the benefits of a regular income and capital growth in the long term offering security for your future. To ensure success you need to know your target market to attract the desired tenants.

You must offer the right property in the right place at the right price.

By making the right investment your property could give you gross yields of 5% to 10% each year although you will need to meet the cost of the buy-to-let mortgage and maintenance costs of the property.

In addition, a property bought in an area with economic growth potential would mean more people moving to this area. This would help to increase demand for both rental and purchased properties. You would benefit from both increasing rental income and increasing property values in the future.

Once you have your first buy-to-let property you gain experience of the management process and it becomes easier to build a buy-to-let portfolio of properties. Buying more properties can also reduce the risk of your investments with income from various sources protecting you from void periods.

Securing a buy-to-let mortgage

If you cannot buy your property outright with cash, securing a mortgage for your buy-to-let property is essential. These mortgages are set-up on an interest only basis to maximise cashflow which produces the best return on your investment.

You will also need to take account of Stamp Duty Land Tax (SDLT) for new buy-to-let properties which increased by 3% on the whole purchase value from 1 April 2016 as the following table shows:

Unlike a residential mortgage, for a buy-to-let mortgage the minimum deposit expected by the lenders is 25% of the property value and the best deals are offered with a deposit of 40% of the property value.

The interest rate you pay will be higher for a buy-to-let mortgage than residential due to the higher associated risks, although nevertheless competitive. With a loan to vale of 75% the rate could be as low as 2.79% and a loan to value of 60% is down to 2.35%.

Lenders also look at the rental income from the property and this must be at least 125% of the interest payments. Each lender has a prescribed rate which could be higher than interest rate you will pay during the introductory offer period. This level is set to ensure the purchase is affordable with void periods. Ultimately you should be looking for the highest possible rental income for the greatest yield in order to produce attractive buy-to-let investment returns.

The interest rate set could be from 5% to 6% and can change over time. If the rental income evidence is not as high as 125% of this rate the lender will not give you the mortgage. For example, if you’re buy-to-let property is valued at £200,000 and you have a deposit of 25% of £50,000 and borrow £150,000 the rental income must be £871.25 to £937.50 per month depending on the lender rate to be accepted.

If the maximum rent you can ask for is less than the minimum, you will need to increase your deposit (which reduces the mortgage loan) in order to secure an offer. In some cases, such as new-build homes, lenders will automatically ask for a larger deposit of 35% as they consider these properties a higher risk. The higher deposit makes it more likely that the rental income will meet the lenders criteria.

Like a residential mortgage, lenders expect you to prove your income as well as provide evidence the property rental income will be 125% of the lenders prescribed rate.

Remortgaging your buy-to-let

A buy-to-let mortgage can include an introductory offer period with an interest rate lower than the standard variable rate (SVR) usually from two to five years. The most popular types of mortgage products are as follows:

At the end of the mortgage offer period you can remortgage the property and low for another lower rate, just like a residential mortgage. Keeping the mortgage payments you pay as low as possible improves the return on your investment.

If the value of your property has increased significantly since you first bought it, you could also consider releasing some equity to buy another buy-to-let property. This process helps you to leverage your investment and improve the investment return as you only have to have a 25% to 40% deposit.

It is one of the benefits of a portfolio that could result in you almost doubling the value of your assets and rental income without you having to invest a significant amount of additional cash.

Managing your buy-to-let

Your buy-to-let property will have a number of ongoing costs which you as the landlord are responsible. There are regular maintenance cost for the property, a decision to make about management either you or a letting agent and tax to pay on the rental income.

Firstly you need to decide if you are going to manage your property yourself or if you will appoint a letting agent. If you manage this yourself you need to find the tenants, arrange the legal paperwork and manage this relationship.

Alternatively you can appoint a letting agent to manage your buy-to-let property on a day to basis. There will be a fee for providing this service of about 10% to 20% of the rental income.

There are also ongoing costs to take into account such as maintaining your buy-to-let. If the property has a gas supply as the landlord you will need to ensure the appliances are maintained and safety checks completed.

It is also your responsibility to make sure the electrical wiring is safe as well as any electrical equipment provided to the tenant to use. The landlord is also responsible to ensure the safety of the tenants and premises in the immediate vicinity from fire risks and to make tenants aware of emergency escape routes.

You are also responsible for paying tax on your rental income which you declare in your self assessment at the end of the tax year. You only pay tax on your profit and can deduct expenses from the rental income more details in our tax guide for landlords.

Some of the deductions you can make from the income are mortgage interest, wear and tear, insurance, letting agent fees, cleaning, legal fees, mortgage adviser fees, property magazine subscriptions and even overdraft charges.

Let-to-buy property

If you have been living in your existing home for a number of years with a residential mortgage and wish to move to a new property but keep your existing one, it is possible to consider a let-to-buy property mortgage.

In this case your existing property is likely to have increased in value since you original bought it and you can release equity to buy your new home. You may also have had an increase in your income over time which would put you in a strong position for let-to-buy.

The advantage with let-to-buy is you are likely to have a high level of equity in your existing property and this can be partially released by increase the loan to value up to 75% on your existing property.

The surplus equity would be paid as a deposit on your new home which could mean you do not need to find any further cash from your own savings.

Moving to new home can be the ideal opportunity to review your existing mortgage to ensure it will meet your new needs. Most mortgages are portable which means you can take it across to a new property subject to meeting your existing lenders conditions and any administration costs.

If you are buying a larger property you may need to borrow more and if you have come to the end of a promotional period with your existing lender, you could save on your monthly payments by finding the best deal for your circumstances.

With independent advice from London City Mortgages we can show you how to make the mortgage payments as affordable as possible when moving home. We can help you find the best mortgage deal and make the online remortgage process easy for you.

Your borrowing needs

Before you make an offer on a new property you should work out if you will need to borrow more. If you have been in your existing property for a number of years the property price is likely to be higher so you can release more equity from the existing property.

This equity would form the deposit for the new property and how much you can borrow will depend on your income and your ability to afford the size of the new mortgage loan.

All lenders will base the amount you can borrow on your income and affordability checks take account of your outgoings such as child care, holidays and living costs before they provide the loan. Lenders also look at multiples of income to determine the maximum they are prepared to lend and this can be 4 or 5 times a single or joint income.

Your current lender is likely to allow you to use your existing mortgage to transfer to a new property. To do this will would apply income and affordability checks and make a mortgage transfer charge which is typically several hundred pounds.

If you have a large amount of equity in your property, you could consider let to buy where you keep your existing property as an investment and release some of the equity as a deposit on a new property. The existing property is rented out and you move to a new property and in this situation it would be worth speaking to a mortgage adviser to arrange the two types of mortgages.

Consider remortgaging

When you move house you may want to take advantage of this opportunity to make changes to your existing mortgage or borrow more. If this is the case, it could be worth looking at the whole mortgage market again to find the best deal for you.

Ideally you would have come to the end of any introductory offer and have no exit penalties to pay for moving to a new provider. Even if you did not have to increase the amount you need to borrow there are advantages to remortgaging.

In particular you may want to change the type of mortgage. If you started with a discounted variable mortgage two or three years ago you may want to know for certain your payments will not change and go for a fixed rate mortgage instead.

If you think interest rates are going to increase, this is also a good reason for going for a fixed rate mortgage. If you are borrowing more the interest costs are going to be higher so you could be offered a better deal from another lender.

Take into account the interest rate for the mortgage and compare the total costs over the introductory offer period. This will usually be for two or three years although some lenders can offer longer term periods. The longer the term of the mortgage the higher will be the interest rate.

Lenders usually have an application fee which can be added to the mortgage loan so you need to take this into account when comparing the costs of your existing lender and remortgaging to a new lender.

Applying for a remortgage

The application process for a remortgage for a house move is very similar to any other application. If you are applying through London City Mortgages the application can be completed for any mortgage lender online 24/7 on a pc, tablet or phone. You can upload any other documentation direct to your application such as payslips, bank statements, proof if identity and address.

You have an advantage when you move home compared to buying for the first time as you are likely to have a larger deposit and a history or regularly paying your mortgage which reduces the risk for any new lender. This can improve rate offered and ease of securing the mortgage.

Our advisers can check the maximum amount you can borrow and search the whole market for the lender offering best mortgage deal for your circumstances.

Once the lender has received your application they will conduct a credit and affordability check before making an offer for the mortgage. Remember also that the lender would also need a valuation for the new property and often this is paid by the lender.

If you are taking the let to buy route where you keep your existing property to rent as an investment and release equity for the new property, you would need to arrange two mortgages.

Many homeowners will have existing mortgage deals for a fixed period of time such as two, three or five years. When the deal ends your mortgage will revert to the standard variable rate (SVR) which may be a much higher rate increasing the cost of your repayment.

A mortgage repayment will tend to be your largest monthly outgoing, so it is important to starting looking to remortgage before your existing deal ends. You could first ask your current lender to see what they can offer you.

With independent advice from London City Mortgages we can help you find a lower rate than the SVR including fixed rate and tracker rate mortgages and with a term that meets your needs. We can help you find the best mortgage deal and make the online remortgage process easy for you.

Why would you remortgage?

Your property is likely to be your largest asset and there are many benefits of selecting a new mortgage to meet your current needs.

If you have been a homeowner for short time such as five years or less you may wish to reduce the monthly repayment costs by remortgaging or move to a fixed rate mortgage to have certainty of the monthly payments.

If you have owned your property for ten or twenty years you may like the idea of raising equity by remortgaging. You could use this to improve your home such as adding a new kitchen, bathroom or extension which could also increase the value of your home. Here are some of the benefits of remortgaging:

If your circumstances have changed you can remortgage to allow greater flexibility such as selecting a shorter or longer term, making greater overpayments without penalty.

Finding the right remortgage

You may find since you bought your property the price has increased and this will improve your loan to value (LTV). As the LTV reduces and the amount of equity increases lenders are willing to offer you better interest rate deals.

As an example, if you bought your home for £300,000 with a deposit of £15,000 or 5% your loan to value would be 95% and let’s say your mortgage rate at the time was 4.49%.

If your property value increases from £300,000 to £360,000 your equity in the property will be £75,000 or 20% reducing your LTV to only 80% and you are seen as a lower risk borrower by the lenders.

The interest rate you pay will decrease considerably with the lower LTV and by remortgaging you could be offered a rate 2.5% lower than your existing rate saving you a significant amount in interest over the term of your next mortgage.

There are a number of mortgage types to consider are as follows:

If you are on an interest only mortgage you may find you will have to change to a repayment mortgage as lenders have changed their criteria. Many lenders would require you to have a high level of earnings a high level of equity in your property before offering an interest only mortgage.

Reducing your mortgage costs

You can reduce the costs with some planning by avoiding lender charges and reducing the total interest you pay over the lifetime of the mortgage.

Most fixed, discount or tracker mortgages would require you to pay an early repayment charge if you move to another mortgage lender before the end of your special deal and this charge could be as much as 3% of the mortgage.

If you are still on a special deal you should check the terms & conditions for your lender to see if a charge applies. In some cases, such as a tracker mortgage, you may be free to move without a charge.

Ideally you would have come to the end of any introductory offer and have no repayment charge to pay for moving to a new lender. It could be worth looking at the whole mortgage market again to find the best deal for you.

There are a number of cost advantages of remortgaging such as staying away from the standard variable rate (SVR) which could be high such as 4% to 5% and a cost worth avoiding.

You may also want to change the type of mortgage if you started with a discounted variable mortgage two or three years ago. With interest rates at an all time low level there is always the risk interest rates may increase in the future and you can avoid the cost of rising mortgage repayments with a fixed rate mortgage.

You also need to compare fees and interest. The new mortgage deal may have an arrangement fee of £500 to £1,500 so you need to compare this with a deal that has no fee. The application fee can be added to the loan so you need to take this into account when comparing the costs of remortgaging.

You will find if there is no fee charged the interest rate will be higher, so over two or three years you need to work out if paying more interest cost more or less than the higher fee option.

A shorter term deal such as two or three years will have a lower interest rate than longer term deals such as five or ten years. You need to take into account the interest rate for the mortgage and compare the total costs over the introductory offer period.

Making overpayments

Your mortgage will have a term of 25 to 40 years and over this time period the amount of interest you will pay and really add up. If you can make overpayments in addition to your mortgage repayments you will significantly reduce the interest cost of your mortgage.

For example, if you buy a property for £210,526 with a £10,526 deposit your mortgage will be £200,000. The most popular term is 25 years and if you pay an average interest rate of 2.95% the cost is £943.23 per month.

Over 25 years you would pay £82,968 in interest and if you made an overpayment of £200 per month this would reduce to £61,786 or a saving of £21,182. Furthermore you would fully repay the mortgage after 19 years and 1 month.

Most mortgages allow you to overpay the outstanding value of your mortgage by up to 10% each year without penalty. Some may allow you to overpay an unlimited amount such as some tracker deals without penalty.

Applying for your remortgage

The application process for a remortgage for a house move is very similar to any other application. If you are applying through London City Mortgages the application can be completed for any mortgage lender online 24/7 on a pc, tablet or phone. You can upload any other documentation direct to your application such as payslips, bank statements, proof if identity and address.

Unlike buying for the first time, remortgage buyers have an advantage as you are likely to have more equity in the property and a history or regularly paying your mortgage which reduces the risk for any new lender.

Our advisers can check the maximum amount you can borrow and search the whole market for the lender offering best mortgage deal for your circumstances.

Once the lender has received your application they will conduct a credit and affordability check before making an offer for the mortgage. Remember also that the lender would also need a valuation for the new property and often this is paid by the lender.

As a first time buyer, purchasing your first home is one of the most important decisions you can make to improve your lifestyle.

For people new to the property and mortgage market it can be overwhelming with so many options to choose from as you search to make the best choice for you.

This is why as a first time buyer you can rely on the independent advice from London City Mortgages to help you get on the property ladder. As a first time buyer we can take you through the schemes designed to help you buy your home and recommend the most suitable and affordable options.

We can help you make sense of the technical jargon, find the best mortgage deal and make the online mortgage process easy for you.

How much for a deposit

Saving for a deposit is one of the biggest hurdles to buying your own home. In many cases first time buyers must save tens of thousands of pounds for a deposit to purchase their first property.

This can often seem impossible to achieve when property prices are rising and your ideal home demands an ever larger deposit. Even so there are more mortgages available requiring only a 5% deposit of the property value and schemes such as Shared Ownership and Help to Buy that can help you own your first home.

The greater the deposit you have the better the mortgage deal a lender can offer and the lower the cost of the mortgage, so saving for a deposit saves you money in the long term. If you can afford a larger deposit of 10% the choice of mortgages increases and very competitive rates are offered where your deposit is 25% or more.

If you only have a small 5% deposit the mortgages are much more expensive as you pay more in interest due to high loan to value (LTV) of 95%. You will have a larger loan and the lender charges a higher interest rate as their risk for giving you the loan is higher. The interest rate you pay for a 5% deposit can be 2 to 3 times higher than for someone with a 25% deposit.

The interest rate is reduced by the lender for 90% mortgages although you would need a bigger deposit. For example, if the property was valued at £200,000 for a 5% deposit you would need £10,000 and for a 10% deposit you would need £20,000. If you do not have a large deposit your family helping you to buy could reduce the cost of interest payments significantly.

If you go for a 75% mortgage LTV this means you have a 25% deposit or £50,000 and can expect very good interest rates but with a 60% LTV you would have the best rates on the market. The reason is that the risk to the lender of negative equity and default occurring in the future is much lower so they offer a much better deal.

Main costs of a new home

Apart from your deposit you will need to budget form other costs when buying your home and here are some general examples although actual costs may vary depending on your property value and preferences:

For providing a mortgage a lender will have an arrangement fee for setting up the loan and this can be as much as £1,000 to £1,500. In general the lower the interest the higher the arrangement and this can usually be added to the mortgage. It is important to remember if this fee is added to the mortgage that you will pay interest for the term of your mortgage.

There are a number of legal costs and for properties with a higher market value the largest cost of buying your home is a government tax called stamp duty which does not apply for the first £125,000. On the next £125,000 the tax is 2%, the next £675,000 it is 5%, the next 10% it is 10% and 12% for amounts above £1.5 million. As an example for a property worth £350,000 the stamp duty will be £7,500.

You will need to appoint a solicitor for the legal aspects of the purchase and their costs will amount to between £500 to £1,500. The cost depends on the complexity of the work required although they can agree a fixed fee.

Another legal fee is the land registry fee that records property transactions in England and Wales. This fee depends on the property price and range from £200 to £500.

Schemes helping you buy

For first time buyers struggling to find a deposit help is at hand. There are a number affordable home buyer schemes backed by the government aimed at both first time buyers and home movers to give you a helping hand onto the property ladder.

The Help to Buy schemes have proved to be popular and available on properties valued up to £600,000. The first phase equity loan scheme allows you to have a small 5% deposit with up to a further 20% of the purchase price provided as an interest free equity loan from the government.

The mortgage required to buy your home would be 75% of the property value. This scheme is for new builds only but there is another you can consider.

The second phase mortgage guarantee Help to Buy scheme is for new builds and existing home or home movers and would also allow a small 5% deposit. The government would provide a guarantee to the mortgage lender of up to 15% of the property value.

This security is intended to encourage lenders to offer larger mortgages at more competitive interest rates to borrowers. In this case the mortgage required to buy your home would be 95% of the property value.

As an alternative you could consider Shared Ownership which is a part-buy and part-rent scheme from a housing association with a share of the property from 25% to 75% of the value. It means you need a smaller deposit for your share and allows you to have a smaller mortgage from a lender. The balance is rent at a reduced percentage usually from 1.5% to 3.0% depending on the property value.

For example, if your property was valued at £200,000, you could have a 50% share of £100,000 and a deposit of £10,000 or 10% which would be half the amount for the whole property. The other 50% belongs to the housing association and if the rent was 2.75% you would pay £229 per month.

Shared Ownership allows you to increase your share of the property over time either by paying for the extra share in cash of as an additional mortgage until you own the whole property.

Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat. Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi.