The right mortgage could increase your buy-to-let yield
As an investment, residential property has the potential to transform your life. One of the key factors in determining the net rental yield you’ll earn as a buy-to-let landlord is the repayments on your mortgage.
When considering how property investment buy-to-let mortgages work, you’ll see that there are several key differences to ordinary residential mortgages. If you think the range of terms and conditions available on homebuyer mortgages can be confusing, then you’ll need to take a second and third look at buy-to-let mortgages.
In this article, I’ll look at what a buy-to-let mortgage broker does for the investor, and how you can benefit from their services.
Why use a buy-to-let mortgage broker?
I always use professionals and experts whenever I can. Sure, I have to pay for their services; but when I use an expert I save my time, and know I’m getting the best advice. I wouldn’t spend a weekend learning how to change a gearbox and do it myself, for example. I think I’d do a pretty competent job – eventually – but I’d have used a weekend to do what my mechanic can do in a few hours. Plus, with the mechanic’s expertise, I would feel safer when I drive – and it’s guaranteed.
It’s the same story when you use a buy-to-let mortgage broker for my property investment. Even though the Financial Conduct Authority doesn't regulate BTL, a mortgage broker is. So you can be sure that you’ll get the best advice. If you don’t think you have been given the best advice, you can complain to the financial ombudsman. That’s like taking your gearbox repair back to the mechanic.
Where can you get the best buy-to-let mortgage deals?
One of the biggest mistakes that you can make is to go straight to your existing bank first for a buy-to-let mortgage deal. Some experts advise that this is where you should start, but in my experience, your bank will sell you a loan before you have time to look elsewhere.
Mortgage comparison websites are a good starting point, but you’ll notice different sites show the offers of different companies. Comparison sites cost UK consumers around £650 million a year in largely hidden fees, and many compare only the products from companies that pay them to list their products. Hardly a market-wide comparison.
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Once you’ve figured out the ballpark numbers, you need to speak to a mortgage broker who specialises in buy-to-let financing. If you’ve taken the steps to get the cheapest buy-to-let mortgage on your investment, a mortgage broker will be able to maximise your return on investment by searching the market and getting you the best deal.
How does a BTL mortgage broker work for you?
Buy-to-let mortgage brokers are specialists in their market. They have an unrivalled knowledge of the mortgage rules and the lenders who offer buy-to-let interest only or repayment mortgages.
The first thing the broker will do is discuss your objectives with you. He’ll talk about your investment objectives and the annual rental income you expect to receive as the landlord. Once he’s au fait with your situation, he’ll have the information he needs to search the market for you.
Working with an an independent broker is important. They will examine a range of products from a range of providers, in a bid to find you the perfect match to your objectives. Once the search is completed, the mortgage broker will make their recommendation to you.
How does the broker get paid?
Some brokers will charge you a fee for their service. Others are paid by commission from the lender. Your broker will tell you how they get paid before they start working for you.
The advantages of using a buy-to-let mortgage broker
Because the broker knows their market, they’ll be able to get you the best deal. They work hard to source a mortgage with the terms and conditions that suit your objectives.
For example, you might want the flexibility to make extra repayments on your mortgage pay off the capital you owe. Depending on the house price and valuation, you may be able to pay a lower deposit than others. They’ll also find the lowest buy-to-let interest rates for your needs, and this will bring down your monthly mortgage payments. With lower payments, your cash flow improves and net rental yield increases.
Just as important is the time you save. Your mortgage broker has wider market access, the expertise, knowledge, and contacts to find the best buy-to-let mortgage for your property investment.
If you rely on learning the mortgage market and making the buy-to-let mortgage decision without taking advice, you run the risk of:
- Paying higher interest than you should. If you pay just 1% over the top on a £150,000 mortgage, over 25 years you’ll have paid £37,500 more in interest payments. That comes straight from your bottom line.
- Being turned away by your chosen lender because you didn’t understand the terms and conditions properly.
Even though I’ve been driving for more than two decades, I would never work on my car engine myself. I have my mechanic do that. After 20 years of investing in property, I still use a buy-to-let mortgage broker to sort out my financing needs. That leaves me more time with my family and more time to work on buying the best property investments. I sleep easy at night knowing my buy-to-let mortgages are working hard for my investments.
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