Buy to let mortgage

MaxSilver

Hi,
I am in the process of trying to sort out a meeting with a mortgage broker but, in the meantime, I understand that some people on this forum might be able to give me some initial advice.

My situation is that I want to take out a buy to let mortgage on a house in London, that I think I can get for £500,000.

I have a deposit of £200,000 and I earn approximately £38,000 a year. I think as a quite conservative estimate the property would rent out for £2,000 a month.

I have a good credit history, and I would ideally be looking for an interest only loan.

I know that it is a bit of a rush, but I would ideally need to get an agreement in principle in the next few days.

It would be great to get some initial advice, especially with the following:

1) What is the likelihood of me getting a mortgage, given the current tightening in lending?
2) Can anybody recommend any good deals? Of the ones I have looked at so far, Paragon and Halifax seem to be quite good, with arrangement fees that aren't too high, although some of the redemption charges seem quite high on the Paragon deals.
3) Once I do get a meeting with a mortgage broker, how long would it likely be before I can get an agreement in principle?
4) Am I right in thinking that it would be faster to get an AIP with a broker, than approach a lender direct, because they can verify any paperwork themselves?

Any help would be very much appreciated.

Thanks,
Max

GMS

You should speak to a broker. They may have access to deals not available direct.

Fees as you mention are a huge part of product selection. Some lenders are great on rates but carry a percentage arrangement fee. At 300k this could run to £10,000.

Could be worth a higher rate with a fixed arrangement fee.

DIP can be done pretty much there and then in most circumstances.

Thrugelmir

The rental income appears to be on the low side for most lenders to consider a loan, (and even more so to be considered for a business investment).

At £24k per annum that's only a 4.8% yield on £500k purchase price.

Invest your £200k in an ISA and earn more than 4.8% without the hassle and expense (that hasn't been factored in yet).

MaxSilver

Thrugelmir wrote: »

The rental income appears to be on the low side for most lenders to consider a loan, (and even more so to be considered for a business investment).

I see. Do you know what kind of multiplier they would normally consider? Also, would they take into account my salary?

Thrugelmir wrote: »

Invest your £200k in an ISA and earn more than 4.8% without the hassle and expense (that hasn't been factored in yet).

Thanks, I will look into that, although the best ISA rates I have seen are, I think, just over 3% and even then, I think I can only put about £5,000 a year into one, so I don't think that I could get that on the whole £200,000.

Wh05apk

MaxSilver wrote: »

I see. Do you know what kind of multiplier they would normally consider? Also, would they take into account my salary?

They take no notice of it at all, provided the rent covers the mortgage interest payments with an excess of between 20-35% (depending on lender)

[/QUOTE]Thanks, I will look into that, although the best ISA rates I have seen are, I think, just over 3% and even then, I think I can only put about £5,000 a year into one, so I don't think that I could get that on the whole £200,000.[/QUOTE]

I must have missed that change, I also thought the most you could put into a cash ISA was £5100?

BTL's are not just about the instant return, you also have to look at long term capital growth, also if you look at this the other way, if the op gets a mortgage at say 5% thats £1250 pm, if they get £2000 then thats a "gross profit" of £750pm/£9k pa or about 4.5% return on their initial investment of £200k + growth potential.

As Thrugelmir implies, BTL's are not always easy, they can involve a lot of hassle and expense, but done properly with good tenants can prove a good investment.

MaxSilver

Wh05apk wrote: »

They take no notice of it at all, provided the rent covers the mortgage interest payments with an excess of between 20-35% (depending on lender)

Thanks very much. I reckon that £2,000 per month is pretty conservative, so that is £24,000.

Having a look at some of the deals advertised to the public, I can find ones that are 4-5%, so that would be £15,000 per annum (£300K @ 5%) which I think is an excess of 60%.

On that basis, and given that my credit rating seems pretty good (I think it was about 900 according to Experian the last time I looked), do you think that I have decent chance in the current lending environment?

Wh05apk wrote: »

As Thrugelmir implies, BTL's are not always easy, they can involve a lot of hassle and expense, but done properly with good tenants can prove a good investment.

Yeah, I haven't done one before, but I am trying to be realistic. The house will need some work doing to it before it can be let (I think I have a good budget for that) and I am doing some research on the real costs and pitfalls of letting property, to be as forewarned as I can be.

Wh05apk

MaxSilver wrote: »

Thanks very much. I reckon that £2,000 per month is pretty conservative, so that is £24,000.

Having a look at some of the deals advertised to the public, I can find ones that are 4-5%, so that would be £15,000 per annum (£300K @ 5%) which I think is an excess of 60%.

On that basis, and given that my credit rating seems pretty good (I think it was about 900 according to Experian the last time I looked), do you think that I have decent chance in the current lending environment?



Yeah, I haven't done one before, but I am trying to be realistic. The house will need some work doing to it before it can be let (I think I have a good budget for that) and I am doing some research on the real costs and pitfalls of letting property, to be as forewarned as I can be.

BTLs tend to be looked at almost in isolation provided the anticapted rent stacks up, you have no adverse and fit their criteria you should be ok.

I assume you own your own home? in terms of work needing to be done, is the property rentable as it stands, as if it needs work before renting the lender may not lend.

You are looking at a £500k house, you may do better splitting your deposit over say 2 £250k flats, as yeilds tend to diminish on higher value properties, also even if one is empty hopefully the other will still be let providing at least some income.

Thrugelmir

MaxSilver wrote: »

Thanks, I will look into that, although the best ISA rates I have seen are, I think, just over 3% and even then, I think I can only put about £5,000 a year into one, so I don't think that I could get that on the whole £200,000.

I'm always concerned when comparison is made between a cash deposit account and a BTL. As they are so completely different. A BTL is a business not an investment and needs to be thought of as such. Particularly with the risks that owning one entail.

MaxSilver

Wh05apk wrote: »

I assume you own your own home?

No I don't I rent at the moment. I run a business and the nature of it means that I need to move around quite a bit. I will eventually settle back where the house is, but probably not for at least 5-10 years.

At that point, I would either move into the house (and either pay off the mortgage, or move to a standard mortgage) or by another house as a home.

Wh05apk wrote: »

in terms of work needing to be done, is the property rentable as it stands, as if it needs work before renting the lender may not lend.

No, it isn't rentable as it stands. It doesn't need anything structural, but it needs rewiring, probably new plumbing, new kitchen and bathroom and decorating throughout.

Do you think that would kill it off as a buy to let?

steveM1978

Hi Max, I have had a quick look on our company's mortgage sourcing software and i have found some rough figures for you, there are 2 lenders that jump out at me none of them have been mentioned thus far in the thread.

Lender 1 - 2.740 (2.24 over base)% tracker, 14 months £685 per month repayments a whopping £10500 arrangement fee but i am pretty sure this lender will not look at your salary. this 10.5k can be added to the loan.

Lender 2 - 3.59 tracker (3.09 over base and capped at 5.59%) 24 months £897 a month with a 1284 setup fee.

Hope these figures help you out.

MaxSilver

steveM1978 wrote: »

Hi Max, I have had a quick look on our company's mortgage sourcing software and i have found some rough figures for you, there are 2 lenders that jump out at me none of them have been mentioned thus far in the thread.

Thanks for that Steve. Those rates are definitely better than what I have seen elsewhere, so it is really useful to know.

Lender 2 looks promising, especially because the rate is capped (I do fear a sudden spike in interest rates).

Do you have any thoughts on whether the fact that the place needs some work would put these lenders off?

Thanks again.