What you need to know about buy to let fixed rate mortgages
With interests rates still sitting at 0.5%, where they have been since 2008, and with the rental market continuing to be strong, you may be considering investing your money in a buy to let property rather than using other investment strategies that may not provide you with as much return as a rental property. However before you dive into buying a property to rent out, make sure you know exactly what you is entailed in securing a buy to let fixed rate mortgage.
Know your fees
Unlike residential mortgages you will not find any buy to let mortgages with low application fees. You should expect to pay a minimum of £2000 as you application fee, however many buy to let mortgages use a percentage of your loan value and so the application fee can be much higher, all of which you need to take into account when you are setting your budget limit in order to identify suitable properties. Make sure that you are realistic in the values you are considering by doing your research before you start looking for properties.
How big a deposit do i need?
Deposits for buy to let mortgages are usually required to be much bigger than for residential mortgages. Most buy to let mortgages will require you to have at least a 40% deposit. Although there are some mortgage lenders that will provide you with a mortgage using a smaller deposit, in some cases as low as 25%, they will not offer you the lowest interest rates for your mortgage.
Find a balance
Don’t just look for the lowest fixed interest rate as this does not necessarily provide you with the best deal possible. You need to make sure that you take into account the application fee as well before you can make a judgement on which mortgage will provide you with the most cost effective mortgage. If you are not able to make these calculations yourself you can get an independent mortgage broker to make them for you. They will then provide you with the actual cost to you over the fixed term so that you can compare totals. If the mortgage deal you are looking at works on a percentage of the loan amount as the fee, even if it offers the lowest rate it is unlikely to offer you the lowest payments overall so make sure you shop around.
Why choose a fixed rate mortgage?
The strength of the housing market at the moment, combined with the ongoing rock bottom interest rates means that there are some good mortgage deals around for those who have the deposit to use them. You can find deals that will run for between two and five years, with five year deals having slightly higher rates. No matter which option you choose a fixed rate will protect you from interest rate rises for the term of the fixed rate. Therefore you will not have any surprises when it comes to making the mortgage payment each month.
How to choose the right mortgage product for you
There will be a number of factors that you will need to take into account when you are looking for the right mortgage product, not least of which is the size of your deposit and the loan to value ratio that you are looking at. The location of your property and the potential rental income will also have to be a factor in deciding whether the mortgage repayments will be achievable in the long term should there be any gaps in the tenancy. While you could just walk into you bank and find out whether they have anything suitable you would actually be far better off approaching an independent financial adviser who will be able to identify all of the products that may be suitable for your purposes. This then gives you a broad view of the market. Your mortgage broker can also then provide you with the pros and cons of each mortgage identified that will include things like application fees, tie-in periods, early repayment charges and the overall cost of the mortgage during the fixed rate period.
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