In an ideal world, every landlord would be able to go with their cheapest available buy to let mortgage rate; however, sometimes time isn’t necessarily on your side. Consultant Mortgage Broker, Ashley Jones, explains when you may need to consider more than just costs.
Before we get to look at the impact of cost and time, you will need to assess several other criteria to build the foundations of your mortgage requirements:
- Personal income
- Whether or not you own a property already and if so, how many
- The type of property you wish to mortgage
- The type of tenants you’ll be letting to
From there, you can discuss what type of mortgage you’d ideally like; whether or not you’re looking for a fixed rate and if so, how long? If you’re hoping to expand your portfolio, you may opt for a shorter fixed term, so you have the option to remortgage and possibly capital raise on a more regular basis, enabling you to purchase further properties more quickly. Alternatively, you may wish to secure your payments for a longer-term to secure your financial commitments over several years.
Many landlords opt for interest-only mortgages on their buy to lets to better free up cashflow. As with many investors, being able to overpay on the capital payments might be an essential factor for you, allowing you to clear down the balance over the course of the term.
Once these factors are considered and reviewed, your broker will be able to suggest which lenders and products are available and most suitable for you. On the whole, they’ll advise which is going to be the cheapest as this is usually the primary focus for landlords (understandably); however, sometimes other circumstances mean that further consideration is needed.
With some purchases, time is a critical factor. In situations where the vendor wants a quick sale, not being able to complete promptly can put your entire purchase at risk. Similarly, if you’re remortgaging and raising capital for a new investment, slower lender processes could mean you lose your first choice of property, delaying your plans further.
If time is critical, your broker should be able to advise you how long lender underwriting processes take. Here at Mortgages for Business, we keep track of all our lender’s average process times so that we can help you decide which lender is going to be the most suitable, given the time frame you have, and give you an accurate estimate of offer and completion. Here’s an example based on a vanilla buy to let house purchase:
Lender A: *2.95% 5 year-fixed, estimated 8-10 weeks to offer
Lender B: **3.79% 5 year-fixed, estimated 6-8 weeks to offer
We usually expect completion to occur 4 weeks after an offer for most standard purchases. You can read more about how quickly you can get a buy to let mortgage in our blog here.
Unfortunately, there’s no guarantee that the lender with the quickest turn-around will also offer you the cheapest available rate (though you could get lucky). In this situation, your broker can work with you to decide what’s more important, the cost or the completion time.
While everyone generally prefers to complete as quickly as possible (though not always), not having a set deadline does allow you to weigh up your options more freely. As with any property investment finance, there’s no one-size-fits-all, but we can work with you to find the most suitable choice to benefit your long-term plans.
*Discounted variable at 2.95% for 5 years reverting to 5.60% (SVR). Overall Cost for Comparison: 5.00% APRC. Maximum Loan to Value: 75%. Maximum Loan: £750,000. Typical Rent to Interest: 125% at 5.50%. Early Repayment Charges: 5% of the amount being repaid until the end of year 1, 4% of the amount being repaid until the end of year 2, 3% of the amount being repaid until the end year 3, 2% of the amount being repaid until the end of year 4, 1% of the amount being repaid until the end of year 5 from drawdown. Income Requirement: £25,000. Lender Arrangement Fee: 2% added to loan. Standard Valuation Fee: Free. Legal Fees: Apply. Purchase or Remortgage. Individuals and Ltd Company. 
**Fixed at 3.79% for 5 years reverting to 6.83% (SVR). Overall Cost for Comparison: 6.10% APRC. Maximum Loan to Value: 75%. Maximum Loan: £750,000. Typical Rent to Interest: 140% at 3.79%. Early Repayment Charges: 5% of the amount being repaid until the end of year 1, 4% of the amount being repaid until the end of year 2, 3% of the amount being repaid until the end year 5 from drawdown. Overpayments: Up to £499 per month. Income Requirement: No minimum requirement. Lender Arrangement Fee: 2% added to loan. Standard Valuation Fee: Apply. Legal Fees: Apply. Purchase or Remortgage. Individuals only. 
Rates as at 06/03/2020