In 1997, there were no buy-to-let mortgages, yet in the first six months of this year, loans totaling £21.2 billion were taken out. The total amount of buy-to-let loans now stands at £108 billion, or 10% of all outstanding mortgages.
For landlords, the buy-to-let mortgage market in the United Kingdom, which is one of the most competitive and inventive in the world, has more than a thousand distinct options available.
There has been a reduction in the number of people taking out more hazardous buy-to-let mortgages as a result of the credit crunch. Buy-to-let borrowers are also in for a double whammy because the risk premium in these loans has been reprioritized. As a result of this, banks and buy-to-let lenders have increased their margins over the Bank of England base rate by between 0.25 percent and 0.5 percent. Most buy-to-let lenders have also increased their product fees.
Because of the good news, there is a lot of bad news. This is due to the fact that there are so many things to choose from that landlords may become confused. There are roughly a hundred mortgage companies oahu that offer buy-to-let mortgages, but there are also a wide variety of products available. They include:
- Fixed interest rate – the interest rate is fixed for a predetermined period of time or until a predetermined date.
In the first few months of the loan term, the interest rate is lowered and then reverts back to the usual variable rate for the loan.
Mortgages that follow the Bank of England base rate or LIBOR are known as “tracker” buy-to-let mortgages (London Inter-Bank Offer Rate)
Choosing a buy-to-let mortgage product might be confusing
If you are a landlord, the type of buy-to-let mortgage package that is best for you will depend on your personal financial situation and your attitude toward risk.
A fixed-rate buy-to-let mortgage program may be a good option for landlords who fear that interest rates will rise and make their rent payments unaffordable. For the duration of the set term of the buy-to-let mortgage, the landlord will be assured of a fixed monthly payment regardless of changes in interest rates.
In cases where a landlord’s rental income is less than his or her variable buy-to-let mortgage payments, a reduced buy-to-let mortgage product may be an option to examine. While their rental income increases and/or the general interest rate falls, a landlord can make lower than regular buy-to-let mortgage repayments. A landlord, on the other hand, must be careful with this strategy. In this case, if interest rates continue to climb or if a landlord fails to realize that their discount rate and hence their cash flow is only on a short-term basis, they will face even more financial hardship when the discount rate expires.
A buy-to-let mortgage with a variable rate or tracker is often the most secure and cost-effective over the term of the mortgage because the landlord avoids paying an ‘insurance’ premium to the buy-to-let mortgage provider by not taking out a buy-to-let mortgage product that insulates landlords against an unexpected interest rate change or that gives them a preferential repayment rate.
A list of issues for landlords to keep an eye on
The APR (annual percentage rate) of any buy-to-let mortgage deal should always be a concern for landlords. For the whole life of the loan, an APR or Annual Percentage Rate is calculated. For landlords and buy-to-let borrowers alike, this annualized rate indicates the true cost of a landlord’s loan advance over the life of a buy-to-let mortgage. This amount includes any costs or charges incurred in setting up the loan, as well as the interest rate of the loan after any initial discount or special period has expired.
What are the best places for landlords to learn about buy-to-let loans?
For landlords who want to learn more about buy-to-let mortgages and choose a package that meets their needs, there are a variety of options. The first option is for a landlord to inquire directly with their bank about the availability of buy-to-let financing. With this, landlords will have a limited selection of mortgage options, which means they may not be able to get the best buy-to-let mortgage for them.
The other option is for a landlord to search for a buy-to-let mortgage provider or product on Google. You never know what you’re going to get. On Google, there are a lot of mortgage firms that advertise or are on the search engine. However, the lending criteria and constraints that a buy-to-let mortgage provider imposes on their product mean that not all will be acceptable for a landlord’s needs. By accessing just one bank, building society, or buy-to-let mortgage provider, a landlord will not have access to the widest range of financing products.
Is a mortgage broker necessary for landlords?
If you are a landlord, you can also get a loan from a mortgage broker. Brokers search the market on behalf of landlords to discover the greatest offers. Through an internet database, a buy-to-let mortgage broker can access most buy-to-let loan packages. Mortgage brokers should therefore focus on finding the greatest buy to let deals that meet the needs of a landlord. Landlords should expect to pay anything from £200 to £500 or more for this service, which is only due if and when their buy-to-let mortgage is granted.
When so much information can be found for free on the Internet, landlords may wonder why they should hire a buy-to-let mortgage broker at all? There are several causes for this. First and foremost, there’s the issue of timeliness. A reputable buy-to-let broker should be able to rapidly come up with a variety of viable buy-to-let mortgage solutions if a landlord is explicit about their selection criteria. Landlords save time and effort by not having to go through all the mortgage options, their interest rates as well as their terms and conditions. It should be quite simple for a landlord to secure a buy-to-let mortgage if his or her financial situation is uncomplicated. For landlords with more complicated financial situations, finding the correct buy-to-let options might take a considerable amount of time. Buying-to-let mortgage brokers can easily make money by identifying lenders who offer a specific type of buy-to-let mortgage that meets the needs of landlords.
Some buy-to-let landlords aren’t aware that they can get better buy-to-let mortgage rates and terms by utilizing a buy-to-let mortgage broker. For this reason, it pays to consult a mortgage broker who specializes in buy-to-let mortgages first to discover what special buy-to-let options they have access to.
Finally, a buy-to-let mortgage broker handles much of the paperwork necessary in securing a buy-to-let mortgage for its clients. For this reason, it is more likely that a landlord’s buy-to-let mortgage application will be granted if it is submitted through a buy-to-let broker or intermediary rather than directly.
