3 tips on getting the most from your buy to let mortgage
Property investment is currently booming throughout the UK. Government tactics to slow the market down have included the introduction of stamp duty and tightening up on landlord legislation. That said, the interest rates are still low despite a recent increase, so many people are still turning to property in order to make better returns.
With so many changes in the law, we thought we’d put this article together and include 3 tips on how to get the most from your buy to let mortgage.
- Interest only vs Repayment mortgage
Many buy to let landlords opt for interest only mortgages and we wouldn’t disagree. As a landlord you may benefit more from an interest only as your monthly payments will be a lot lower in comparison to a repayment. Let’s look at the main differences.
An interest only mortgage is where you’re simply repaying the interest on the loan. At the end of the term you won’t own the property outright, in fact you won’t own any part of it. This is because all the mortgage payments have been made towards the interest. Therefore, the mortgage type is named ‘interest only’.
You may be wondering why landlords choose to do this and the reason is simple. With low monthly payments, landlords are able to cashflow much more than if the mortgage was a repayment mortgage. The additional cash flow can then be used on things such as maintenance and also purchasing further properties to expand portfolios. Furthermore, if you have a void period due to tenant’s leaving, then your void period won’t cost you as much as if it were a repayment type.
That said, a repayment mortgage does have an advantage. The advantage is of course that you’ll own the property outright at the end of the term. Many portfolio landlords may have the majority of their portfolio as interest only and then maybe one or two properties as repayment. This can be done to create a pension pot for retirement.
- Remortgage at the right time
Every mortgage has an introductory period, whether it be a buy to let mortgage or a residential mortgage. An introductory period is where the mortgage rate is usually quite low in comparison to the reverted rate. Many landlords forget about this and continue to pay the higher rates which doesn’t make financial sense at all. Why pay more interest when you can simply remortgage to a better rate and profit more each month?
The key to a great remortgage is to find the best possible deal. Also speak to your current lender and check to see if they’re prepared to continue your rate or even better it. Even if you can find a mortgage that is £100 cheaper each month, will save you £1200 a year. Reverting rates are often double or even triple the introductory mortgage amount, so it makes sense to remortgage to a better deal each time you can. Be careful not to remortgage whilst you’re in an existing term otherwise you may have early redemption charges which can pack a punch.
Shop around and speak to a mortgage broker to find you the best possible deal available. This brings us on to our next point.
- Utilize the experience of experts
Using experienced companies and individuals in buy to let can be key to the success of your property ventures.
We’d always recommend in using a letting agent to find tenants and then manage the property on an ongoing basis. With recent introductions of legislation such as protecting tenant deposits and providing documents such as gas certificates, EPCs and How to Rent guides, many landlords are getting left behind. This can cause problems later on if you needed to evict a tenant as you may struggle if certain guidelines aren’t adhered to initially.
Furthermore, many letting agents also offer rent guarantee policies which ensure that the landlord is always paid their rent, irrespective of whether the tenant pays or not. Using letting agents to safeguard and manage your investment has many other advantages such as saving your own personal time.
A mortgage broker can also be key in keeping your finances in check.
Getting a great buy to let mortgage should be the starting point for any investor. It’s often said that it doesn’t matter how many properties an investor may have, it matters how much they cashflow.
This is often down to the way the properties are financed. A broker will also remind of you of when a remortgage is due, again saving you money.