3 common questions property investors ask about buy-to-let deposits

Property investment potential starts with your deposit

The most successful investors are those who align their goals, ROI, and risk when they invest. By understanding these crucial elements, they then plan their investment to meet their lifestyle goals.

When you invest in property, there are three major areas of financing to consider:

  1. The deposit
  2. The buy-to-let mortgage
  3. Running costs

In this article, you’ll find the answers to the most common questions asked by investors about the buy-to-let deposit. I’ll cover the common questions asked about buy-to-let mortgages and running costs in future articles.

The buy-to-let deposit

For many people, this is the biggest hurdle to jump. It’s the one that causes most people to delay investing in property, just as it causes young people to delay the purchase of their first home. The questions that most people want to be answered are:

1.      How much will I need as a deposit on an investment property?

This is a tough question to answer for several reasons, though it is certainly true that you will need a higher deposit amount to invest in property than to buy your own home.

The amount of deposit needed depends mostly on the mortgage provider’s own rules and view of buy-to-let business at the time you apply for your mortgage. Lenders constantly change their deposit requirements to meet the needs of their business.

The amount you need to pay as a deposit may also depend on your experience in the buy-to-let market. The more experience you have, the lower the risk a lender may consider you to be as a borrower.

Taking all into consideration, as a general rule of thumb, you should expect to pay a deposit of 30% or more, though some providers may offer buy-to-let mortgages on a deposit of 25%.

With average house prices in the UK around £220,000, the average deposit you may need to invest is around £70,000 to £80,000. Of course, this depends on where you invest, too. Property prices are far higher in London than they are in Birmingham, for example. Therefore, the deposit needed to invest in London is usually much higher than that needed in Birmingham.

2.      How could I raise a 30% deposit?

You’ve decided you want to invest in property because you understand that it’s the best asset to align your goals with investment ROI and risk. But the 30% deposit – where will you get that?

We see investors from all walks of life, and with deposits from a variety of sources. These include:

Remortgaging the home is one of the most popular ways of raising a deposit. Many first-time property investors bought their own property years ago. Some have repaid their mortgage. Most are sitting on large amounts of positive equity. This is, effectively, like money sitting in the bank and earning no interest. It is a pot of untapped and underperforming wealth.

By remortgaging, you release underperforming equity and get to take advantage of the benefits of leveraging in property investment. The potential to grow your wealth faster and achieve your lifestyle goals sooner could be realised by taking this route to raising the deposit.

3.      What difference does deposit size make to me?

When you buy your own home, the larger the deposit you pay, the better the mortgage deal you are likely to get. This is reflected in a lower interest rate. Generally, this is the same as when you invest in buy-to-let property.

A larger deposit gives you a wider choice of lenders, and the interest rate offered is likely to be more competitive. This could make a big difference to your cash flow and profits from property investment. A 1% lower mortgage rate on a £150,000 mortgage will result in £37,500 of extra cash flow/gross profit over 25 years.

In my next article, I’ll look at the most common questions asked about buy-to-let mortgages.

In the meantime, to discover how investing in property could change your life, contact Gladfish today on +44 207 923 6100 and book a strategy consultation. We’ll help you identify how big a deposit you need to invest in property, where you could find that deposit, and help assess the cash flow and capital growth potential from a range of investment opportunities.

Live with passion and fun,

Brett Alegre-Wood

Brett Alegre-Wood
July 12, 2018

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