• What if I want to buy a second home, rather than a rental property?
• What if I want to move but can’t/don’t want to sell my current home?
• What is meant by the term equity release?
• If I have an existing rental property, can I release some of the equity from my house?
• How do the interest rates compare to residential mortgages?
• What is a deposit or a vendor gifted deposit?
• Do I have to have a deposit for a buy to let mortgage?
• What is the APR?
• What is the SVR?
• What is a capital and Interest Mortgage?
• What is an interest only mortgage?
• What is equity?
• What is a freehold property?
• What is a leasehold property?
• What is an off-plan property?
• What is a mortgage agreement in principle?
• What is a snagging consultant?
• What is the FSA?
• What is a discount Mortgage?
• What is a fixed rate mortgage?
• What is a flexible mortgage?
• Who are ARLA?
• What is an inventory of contents?

How much am I able to borrow to fund a buy to let property purchase?

How much you can borrow is normally based upon the rental income that is expected to be generated from your purchase. The limit on what you are able to borrow is that the rent on the property will cover between 125 to 130% of the mortgage payments. This is based on an interest-only loan and not a repayment basis. You will also be asked to put down a 15-20% deposit.

What if I want to buy a second home, rather than a rental property?

There are types of mortgage that are beneficial for people who want a second property to escape to at the weekends. These schemes can be specially tailored to allow you to take full advantage of buy to let mortgages to secure a second home. With these schemes you do not need to prove that you earn a sufficient income to support both loans.

What if I want to move but can’t/don’t want to sell my current home?

A ‘Let to buy’ scheme is ideal for buyers in this situation. You can release the deposit for your new purchase from your current property.

What is meant by the term equity release?

This is the process of releasing capital (money) from your home; you are able to do this is the value of your property has increased since you bought the property. Many people are cashing in on the high property values we have seen build in recent years by releasing equity in their home.

If I have an existing rental property, can I release some of the equity from my house?

A fees-free mortgage, where the new lender pays all costs, will allow you to change to a mortgage deal with a lower interest rate and also release some of the profit from your rental property or home. In some cases of fees-free mortgages, a larger loan may even cost you less than the existing one. The funds that are released can be used for any purpose so, as well as a deposit, you can also use this equity release for debt consolidation, business ventures and investments like rental property.

How do the interest rates compare to residential mortgages?

Buy to let interest rates tend to be marginally higher than residential mortgages due to the perception that this type of loan is less secure. Because the property will not be a roof over your head, lenders set higher interest rates to counter balance this perceived increased risk.

What is a deposit or a vendor gifted deposit?

Once the contracts are exchanged, a deposit is a sum of money that the buyer puts down on a property to secure the mortgage loan. This is usually 5 – 10% of the value of the property but this varies from lender to lender. A vendor gifted deposit is when part of the balance (usually 5%) is paid by the company/person(s) selling the house – this is common in new build properties.

Do I have to have a deposit for a buy to let mortgage?

Yes. A 15-20% deposit is required on a buy to let scheme. 25% will open up more options with lenders but, it is worth remembering that a 15% deposit is also perfectly acceptable and will allow you to establish a property portfolio quicker and tie-up less of your capital.

What is APR?

Described as the ‘overall cost for comparison, the Annual Percentage Rate is the rate that mortgage lender must quote when discussing mortgages. It shows the annual cost of the mortgage and is represented as a percentage of the loan. Included in this rate are items such as the interest rate you are charged at the start of your mortgage, application fees, survey fees and any other charges that are commonly paid at the end of the mortgage.

What is SVR?

Standard Variable Rate is a variable rate of interest that is set by the lender on a mortgage. This interest rate is subject to changes reflecting the increases or decreases in the Bank of England’s base rate. One of the main reasons for shopping around for your mortgage is to get a better deal than your current lenders SVR.

What is a capital and interest mortgage?

Also referred to as a ‘Repayment mortgage’, this is a mortgage where you make monthly repayments over an agreed number of years. The amount will cover the amount you have borrowed and the interest that is charged over the term of the loan. At the end of the loan term, you will owe nothing to the lender.

What is an interest only mortgage?

This is where you only repay the interest on your current mortgage amount. If you choose this option, you must save money to repay the capital of the loan at the end of the loan term. This is usually done by putting money into an ISA or a similar investment vehicle.

What is equity?

If your house is worth more than the mortgage amount you have left to pay, you have ‘equity’ in your property. As an example, if your remaining mortgage is £100,000 and your property is now worth £150,000, you have equity of £50,000.

What is a freehold property?

If you are buying a Freehold property, you own it and the land it is built on.

What is a leasehold property?

If you are buying a leasehold property, you only have ownership for a certain number of years as the property is owned by a landlord or a freeholder. The term of a leasehold property is usually between 99 - 999 years and this will gradually decrease from year to year. When a buyer purchases a leasehold property, you buy the lease and then pay ground rent and service charges to the landlord or freeholder.

What is an off-plan property?

Buying off-plan means buying a property from the architects plans and drawings before the developer has started building the property. The benefits are that you can often secure discounts on the property and you don’t start paying your mortgage until the property is built: meaning you benefit from capital growth with no mortgage.

What is a mortgage agreement in principle?

A mortgage agreement in principle is an offer from a mortgage lender that you meet their requirements for lending and a stated borrowing limit. This can be used to show a vendor that you are a serious buyer; allowing you more leverage on negotiations.

What is a snagging consultant?

A consultant of this type can help you negotiate the price of your new build property; experts in spotting and highlighting faults they can help you save a substantial sum. And don’t forget they negotiate property prices for a living!

What is the FSA?

The FSA is the Financial Services Authority; the governing body in the UK for all financial service products. Ensure anyone you deal with or buy from is associated to the FSA.

What is a discount mortgage?

A discount mortgage is a variable rate mortgage (e.g. if interest rates rise the mortgage will increase by the same amount). The mortgage is discounted against the Bank of England Base Rate for a period of time, usually 2 – 5 years. This is normally well below the lenders standard variable rate. This type of mortgage will often give you a great rate, but can’t offer the predictability of a fixed-rate mortgage.

What is a fixed rate mortgage?

This mortgage allows you to fix your mortgage rate and fee for a period of time. You will pay more for this security but this may be worth the extra payments depending on your position.

What is a flexible mortgage?

There are many forms of flexible mortgages but the most common is a mortgage that allows you to make extra lump sum or monthly payments, borrow back money, take payment holidays and make underpayments. Nowadays many fixed rate and discount mortgages come with flexible features.

Who are ARLA?

ARLA stands for the Association of Residential Letting Agents. Association to this body is not obligatory for management companies, but those that are not associated will not have to abide to their codes of conduct and this could put you, as the investor and your tenants, at risk.

What is an inventory of contents?

This is a detailed audit of the condition and contents of your property. It is recommended you carry out an inventory on the entry and exit of a new tenant. This can allow you recoup damage and loss of possessions more easily. A managing agent should complete this on your behalf.