Buy-to-let financing gets cheaper in the UK

Cheaper buy-to-let mortgages equal better cash flow and bigger profits

Property investors who worry about cash flow have received another boost recently. In an already competitive buy-to-let mortgage market, Leeds Building Society has announced a refreshed 70% loan-to-value range. It claims its new two-year fixed rate deal is the lowest on the buy-to-let market. It could signal a price war, with other lenders cutting rates to attract buy-to-let financing business. Great news for property investors.

Cheaper mortgage payments with lower fees

The 2.32% buy-to-let mortgage deal from Leeds Building Society is available to investors with a single property and portfolio landlords with four or more properties. Better still, Leeds Building Society has introduced the mortgage with:

  • No application fee
  • No product fee
  • No valuation fee
  • Assisted legal fees

If you want to repay the mortgage in full before the end of the two-year fixed interest rate period, you will be required to pay an early repayment charge. But, you can repay up to 10% of the capital outstanding each year without incurring this charge.

What does this rate mean for your cash flow?

According to the Land Registry, the average house price in the UK is £226,906.

The HomeLet Rental Index puts the average rent in the UK at £924 per month.

Let’s do some maths:

  • With a deposit of £68,072, you could buy the average-priced property in the UK with a mortgage of £158,834 from Leeds Building Society.
  • Its new two-year fixed rate of 2.32% would cost £307 per month.
  • Add in investment property management fees, allow for 5% maintenance costs and a one-month void period per year, and you would be left with an average of £414 net profit per month.

To put that another way, a pre-tax return of approximately 7.3% on your invested capital. And this is before taking any rise in property value into account.

Always use a mortgage broker for buy-to-let mortgages

The competition in the buy-to-let mortgage market is fierce. I doubt that Leeds Building Society will be out on their own as the lowest-priced mortgage for long. Also, the above example is exactly that; it doesn’t take your personal circumstances into consideration, and, of course, doesn’t allow for your tax position.

To ensure you get the best mortgage deal for you – with your current and future financial position considered, your objectives and tax banding accounted for – you should always use a mortgage broker. And not any old mortgage broker, either. Make sure you use a broker with specific knowledge and experience in buy-to-let and property investment financing.

Another reason to use a mortgage broker is highlighted by a warning from Leeds Building Society: You can apply for their mortgages online, but, as it says:

“If you apply for a mortgage online you will not receive advice from Leeds Building Society. You will need to make your own choice about which mortgage is suitable for you and we will not assess the suitability of that mortgage to your needs and circumstances. You will not benefit from the protections offered by an advised service. This is called an execution only transaction.”

“Advice” and “protection”: two of my favourite words. Make sure you benefit from them, by always using a mortgage broker for buy-to-let mortgages.

We’ll keep you updated with market news as and when it happens because it pays to read the property news and decipher the surveys, research, and analysis in the market.

Get in touch with one of the Gladfish team on +44 207 923 6100 and sign up for the Gladfish Newsletter to stay abreast of all the property investment news that matters. We give it to you straight. No BS. No hype. Often, before it becomes news!

Best regards,

Neelam Springer

Brett Alegre-wood
July 31, 2018

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