Central London - BTL Issue and Mortgage Advisors

master_ian

My sister and I will be applying for a mortgage in a few weeks and with the multitude of whole of market advisors out there where do FTB's start? We're based in Aldgate, Central London ...however are looking to purchase a Buy-To-Let outside of London because we simply don't have the budget. Targets are high rental areas in up-and-coming areas such as: Gravesend, Kent (Eurostar + new housing/business investment), Liverpool (2008 European Cultural City), and possibily Aberdeen, Scotland (prices still low, however simmering with potential - maybe too far tho!) We would prefer somewhere closer to London. (other ideas?)

Anyway, we have a 20K deposit and and can afford a 160K mortgage. This is a long term investment - ie at least 10 years, and we're treating it strictly as an investment - hoping the capital growth will contribute to my sister's long-term plan of opening a mental health clinic. Our own rents are well below ave rates..we're happy to continue renting where we are. My questions to any advisors out there would be: I read that for BTL, interest only mortgages are the norm. If we can afford repayment, can we get a better deal? Also, is the 15% deposit a pre-requisite across the board of lenders? If this is the case we can only afford a 140K flat (we are planning for a 2 bed)- or do some lenders accept 10%. Then we have a more realistic figure at 180K...So Many Questions!!

Any help appreciated...:beer:

dunstonh

This is a long term investment - ie at least 10 years, and we're treating it strictly as an investment

Thats medium term and considering the price of properties right now, that may not be long enough.

read that for BTL, interest only mortgages are the norm. If we can afford repayment, can we get a better deal?

No. There is no difference in the deals. Its just a different method of repaying it. Interest only is more tax efficient than repayment.

Also, is the 15% deposit a pre-requisite across the board of lenders?

No. However, it is the most common requirement. As is having sufficient rental.

Any help appreciated

What sort of rental yields are you looking at before and after costs?
How are you financially placed if property values were to drop 30% in that 10 year period?
Is the return likely to be worth it for a high risk transaction like this?
Can you afford dead rental periods or bad tenant?
Have you costed in things like a property management company?
Have you prepared a business plan and factored in costs, tax and potential scenarios/
Whilst there was good potential a few years back, the potential is less so now and mortgage buy to lets are high risk investments so you need to consider the possible negatives. It doesnt mean they will occur but may occur and you need to know what the consequences of your actions.

master_ian

Cheers Dunstonh,

Quite a few people on this forum are cold or advising against BTL these days. I realise it's not like the late 90's, however, provided one does their research well, one can get a good deal on the purchase especially when choosing the location - ie, predicted property price increase in 5 years for Newham in London is 40%-- source from Prophit, an analysis org. And agents say that the highest yields are available from flats let to immigrants people on benefit (apparently!) - to avoid void periods, etc. New builds tend to be a bad idea I've heard as they're over-priced, so we'd be looking to buy a good 'second-hand'. Ideally, we are looking for a place that offers serious capital gains in an undervalued location coupled with an income enough to cover our mortgage and other costs that will grow over time.

We are looking into getting an agency to manage the property, and we've factored this our decision, so we've decided to be very strict with the property price - nothing above 180K.

I'm just a bit concerned that our 10% may mean us having to pay a 'premium' interest rate for BTL. Also thinking of taking out a long-term (maybe 5 - 10 year) fixed rate.

Comments?

master_ian

I'd be looking at 5% rental yield after costs (projection)
If property prices were to drop, we'd ride the storm so to speak, continue to let the property and wait...it eventually should revert. This is why I'll be willing to put in the extra effort and time to get a bargain as this is what can be the buffer.
However, we have little savings as of now...but operation SAVE will be well under way on purchase of the property.

master_ian

Suggestions for Mortgage Advisors on this one? And/Or Comments on our situation?

Cheers...

master_ian

Suggestions for Mortgage Advisors on this one? And/Or Comments on our situation?

Cheers...

herbiesjp

Well you can get BTL rates with a 10% deposit, but you will pay a premium in terms of rates and arrangement fees

However the deciding factor with what deposit you will need ultimatley lies with the expacted rental income you will get on the property. The lenders will use this as a basis for a greeing the mortgage for you. Lenders all have different ways of calculating their rental coverage.

So one lender may give you 75% another could in fact give you 85% based on the same rental income.

HTH

master_ian

How best then to find high rental areas/locations aside from speaking with estate agents and reading trade periodicals? I suppose what I'm really asking is How do You Suceed in Buy-to-Let these days?
We are keen to go ahead with a purchase within the next couple of months, as interest rates are forcast to increase at least again, or even TWICE within the next 6 - 8 months. Then by the time we would have saved for the 15%, we'd be paying rates at 6% minimum anyway!

master_ian

How best then to find high rental areas/locations aside from speaking with estate agents and reading trade periodicals? I suppose what I'm really asking is How do You Suceed in Buy-to-Let these days?
We are keen to go ahead with a purchase within the next couple of months, as interest rates are forcast to increase at least again, or even TWICE within the next 6 - 8 months. Then by the time we would have saved for the 15%, we'd be paying rates at 6% minimum anyway!

master_ian

How best then to find high rental areas/locations aside from speaking with estate agents and reading trade periodicals? I suppose what I'm really asking is How do You Suceed in Buy-to-Let these days?
We are keen to go ahead with a purchase within the next couple of months, as interest rates are forcast to increase at least again, or even TWICE within the next 6 - 8 months. Then by the time we would have saved for the 15%, we'd be paying rates at 6% minimum anyway!

master_ian

How best then to find high rental areas/locations aside from speaking with estate agents and reading trade periodicals? I suppose what I'm really asking is How do You Suceed in Buy-to-Let these days?
We are keen to go ahead with a purchase within the next couple of months, as interest rates are forcast to increase at least again, or even TWICE within the next 6 - 8 months. Then by the time we would have saved for the 15%, we'd be paying rates at 6% minimum anyway! :mad: