Five steps to perfect property investment finance
You’ve decided to buy an investment property, and have searched the best property investment opportunities. You’re ready to pull the trigger, but you’re worried about financing your investment. You need a buy-to-let mortgage, but where will you find the best deal? And how do you know the deal you’re offered is the best for you? If you’re not prepared for your first residential investment property financing, you could give yourself a headache.
We’ve helped hundreds, if not thousands of beginner property investors find the best financing options. The mortgage brokers we recommend have the specific experience you’ll need to get the financing to maximise your buy-to-let rental income profits.
In this article, you’ll learn how to prepare for the financing of your property investment in five easy steps.
Know your credit score
Before you do anything else, check your credit score. Get online and check with a company like ClearScore, and discuss what your credit score means with a professional. If your credit score is low, think about ways to repair it before you apply for a buy-to-let mortgage. Keeping credit account payments (like credit cards and personal loans) up to date helps to boost your credit score. Generally speaking, the higher your credit score, the better conditions a lender will offer on your investment finance.
Have plenty of cash in reserve
You should bank on requiring at least a 25% deposit. Remember that the higher your deposit, the more chance you have of getting a loan (and at a lower rate of interest).
On top of your deposit, plan to have a pot of cash for contingencies like unexpected void periods or maintenance bills. A contingency fund that covers between three and six months of the costs of holding your property without a tenant in place should be more than ample in today’s market.
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Get your paperwork together
Lenders will want a lot of paperwork from you. They’ll need bank statements, payslips, and proof of identity (passports and utility bills usually suffice). If you’re self-employed, you need to provide details of your earnings as provided by your self-assessment and communication with HMRC (or your company accounts). The lender will also need to receive an estimate of rental income.
Know the numbers
Getting finance for property investment is different to obtaining a standard residential mortgage. You’ll need to show that rental income will more than cover your mortgage payments. The Prudential Regulation Authority has recently initiated a change to rental assessments. The rental income on your investment property must cover a notional amount of interest by a minimum of 125%. Some lenders are insisting on a cover of at least 140%.
When the lender calculates this interest, it must do so based on a mortgage rate of 2% above the rate which is charged on your mortgage, and a minimum of 5.5%.
You borrow £100,000 at 3%. The lender will calculate minimum interest cover at a rate of 5.5%. It will work out that you pay a notional £458 per month. You must show that the property will produce a rental income of at least £573 per month (125% of the notional mortgage interest).
Find an investor-friendly lender
One of the benefits of using a buy-to-let mortgage broker is that they know the market inside out. They have great connections with specialist lenders and keep up to date with regulation and rate changes. They’ll search the market for you, saving you a trudge around the Internet and the high street to compare perhaps 15 or 20 lenders. They’ll also guide you through the paperwork, making sure that everything is in place when and where it has to be.
A good mortgage broker is one of the specialists who will prove invaluable as you build your property portfolio.
Above all else, those things that you do have complete control over: make sure you do them right. Buy investment property in the best places to invest in property UK. Do this, and the full profit potential of your investment property will be realised because of consistent and constant demand from buyers and tenants.
Contact one of our team today on +44 (0)207 923 6100, and we’ll help you devise an investment property strategy that helps you to profit throughout the property and economic trend cycle. Whatever happens to interest rates, your property portfolio will be prepared.
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