Buy to Let: Financing Your Investment

If you need finance for your investment, you will need a buy-to-let mortgage. Buy to let mortgages are written differently to residential mortgages in one key way: they contain legal clauses to protect your rights as a property owner whilst not in residence.

Whereas residential mortgages have borrowing limits based on income multipliers, buy-to-let mortgage limits are normally calculated on a rental multiplier. A typical multiplier is that the monthly rent must be at least 130% of the mortgage payment.

Typically, a 15% - 20% deposit is required on a buy to let mortgage. This cash may be sourced in a number of ways and, even where you have the cash to hand; there may be advantages in releasing equity in your home or other properties you may own.

If you are considering an off-plan purchase there are a range of specialist products and approaches. Independent brokers, like Fuel, can offer expert help and guidance to ensure you get the right product at the right rate. Buy to let property sourcing companies can offer substantial discounts, and these tailored with the right mortgage can provide you with a return on your investment before the property is built.

Not all buy to let mortgage products are regulated by the FSA, but insure you buy from an independent brokers, like Fuel, who is regulated by the FSA. Most regulated lenders offer a wide product choice including discount, fixed rate and flexible options.

Mortgages are complex and there are a vast number of products available. Many investors choose to engage an independent mortgage broker, like Fuel, who will be up to date with the latest deals, and will undertake product research on your behalf. Some of the larger broker firms like Fuel also have access to exclusive products.

Even though brokers take a commission, mortgages can often work out the same price as going direct to lender; sometimes even cheaper if the broker has access to exclusive deals. Its tempting to cut out the broker but the loss of their help and advice should be considered.

Finally, it is worth remembering that, as with any property purchase, the following costs may be incurred when taking out a buy to let mortgage:

• stamp duty – typically 1% of purchase price (for a property worth £125,000 this would be in the region of £125,000)
• solicitors fees and disbursements – allow £500 - £800
• lenders fees – Allow circa £450
• surveyors fees – Allow £350 - £1200 depending on survey.