Until recently, very few lenders would offer buy to let mortgages over a 75% loan to value (LTV), meaning that landlords needed to find a minimum 25% deposit for their property purchases. As Mortgages for Business’ Director of Sales, Jeni Browne explains, this might no longer be the case…
Over the last few months, we’ve begun to see a change in some of the buy to let lenders, as a number have launched products which feature a maximum 80% LTV (sometimes even 85%)! Why? Well we think that, with all the political and economic uncertainty in 2019 causing the property market to slow right down, lenders are looking for ways to improve their criteria without putting themselves at too much risk of negative equity. Essentially, it was a safe way to start attracting new business from landlords who may otherwise have not been able to afford a 25% deposit.
What are the benefits of 80% LTV buy to let mortgages?
The major benefit which will attract most landlords is that they don’t require such a large deposit, making the initial purchase of the property more affordable. This is good news for both first time landlords purchasing their first buy to let property and established landlords wanting to expand their portfolio further.
Although 80% LTV mortgages rates are usually higher than those at 70-75%, if you’re looking to purchase or remortgage a higher yielding property, such as an HMO, an 80% LTV mortgage could be a suitable option for you. This is because your monthly yield margins will be able to withstand the higher mortgage repayments. I would recommend talking to your broker about whether this will be a viable option for you.
While rates for 80% LTV mortgages are not the most competitive at the moment, compared to the usual 75% LTV buy to let products already on the market, the more lenders who bring these products to market the more competition will drive the rates down – so it’s definitely an area to keep watching in the coming months!
What are the drawbacks of 80% LTV buy to let mortgages?
As I’ve said, at the moment the most obvious negative to these buy to let mortgage products is that the rates are higher than their 70-75% counterparts, which means that they may not be suitable for everyone. Whereas rates for 70% LTV buy to let mortgages in a personal name start from 1.54% and Limited Company from 2.44%, rates for 80% LTV mortgages start from 2.79% and 3.24%* respectively. As with any mortgage, the more deposit you have, the lower the rates you will have access to, although we are hopeful that as more lenders offer these mortgages, competition will bring the pricing down making them more attractive for landlords.
For properties that are not particularly high yielding, these mortgage products just may not be a viable option as the margin between the monthly rental income and mortgage repayment will be too small. For some, the stress testing on these products will simply mean they’re not available either, so it’s worth talking to your broker about what options are suitable for you.
Worst case scenario, but important to mention, should the market suddenly take a tumble (which we think is unlikely) and house prices potentially drop, any property on this type of mortgage is at a greater risk of falling into negative equity simply because of the LTV margin.
If you’d like to know more about these buy to let mortgage products and whether a buy to let mortgage at 80% LTV would be suitable for your current or future property investments, please do not hesitate to contact me, Jeni Browne, on 01732 471647 or email firstname.lastname@example.org.
*Rates as at 09/01/20
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