Here we look at 10 points to bear in mind when looking at finance on a property to be rented out:
1 - First Steps
Buy-to-Let mortgages have become increasingly competitive, but still complex with a bewildering array of choices. Some will offer low rates but come with large percentage fees and often those products that have slightly higher rates and lower fees may be more suitable. We strongly recommend that even before going to look for a property you come and talk to us so we can take you through the various options.
2 - Finding the Property
Unlike looking for a property for you to live in, you need to remove emotion and consider the investment potential of the property. Below are some key considerations you should think about:
1) Rental Income - most lenders require the rent to exceed the monthly mortgage payments, on an interest only basis, by 125% per month at an assumed rate of around 5%
2) Objectives - is the property to bolster your income, or for longer term growth, or both? There may also be some tax aspects you will need to consider.
3) Take your advisers advice (ideally that of Complete RPI Ltd) as to property type and location.
3 - Get your Documentation in Order
A Buy-to-Let mortgage is similar to the processing of a residential mortgage so it is important to make sure your documentation is in order. Lenders like to see your last three years’ address history (no gaps), your last three months payslips and last P60 or three years’ accounts, your last three months bank statements and full details of any loans or credit cards you have. Providing this information on day one can speed up the process no end.
4 - Are you Creditworthy?
All lenders want to make sure they are lending money to someone who is highly likely to pay it back. We can carry out this check for you, or you can go online and some companies will offer you a check for free or a free trial of their services. Simple things like paying all your credit cards on time and making sure you are on the voters roll at your current address will help.
5 - How Much Can I Borrow?
As the property you are looking to buy is an investment, the amount of rental income you achieve is vitally important. Lenders generally require the rental income to exceed the monthly mortgage payments (on an interest only basis) by around 125% per month, often at an assumed rate of around 5%.
This is based on the gross rental income from the property to be purchased or remortgaged.
There are some options available where you can use your income to top up any shortfall on the lenders rental requirements, but you must consider the viability of this as a long term investment.
