Lettings Direct - Letting Agents, Property Management Specialists and Buy to Let Experts.
As a Landlord or Property Investor, being able to finance the purchase of property deals is the most fundamental part of property investment. There are many different options available which will vary considerably on your own personal circumstances and what aspirations you may have for future growth of your property investments and at what pace. It would be difficult for us to advise in general which is good or which is bad as this will be down to personal circumstances, but to give you a better guide, we have listed the main types of finance options below:
Some investors will prefer to buy a property out right for cash - this does give peace of mind that you don't have any borrowings on the property, however if you’re looking to build a portfolio it maybe be more productive to use the money across a number of properties and achieve a much higher "Return on Investment"
The most widely used mortgage for buying investment property. Lenders will have a maximum LTV (Loan to Value), this is usually anything from 60% - 75% and Investors will need to put the rest of the money in. Rates, terms etc. vary considerably from lender to lender, but generally are slightly higher than residential mortgages. Some Lenders will also want to consider a rental coverage - this is a formula that the rent exceeds the mortgage repayments and would usually be between 125% - 150%.
This can take two forms, either as an Investor looking to raise finance by borrowing more money against an existing mortgage or where a fixed rate has finished an the Investor is looking to change mortgage products. Before the housing market crashed, it was common place for Landlords and Property Investors to re-mortgages properties on a regular basis as house prices rose to have funds for further acquisitions. In the years gone by, it use to be common place to have day one remortgages, but nowadays most Lenders will have criteria when it comes this and will expect you to have owned the property for atleast 6 months before a remortgage can be applied for.
This is usually short term loans on a property at much higher than average rates. Usually people will take a bridging loan for one month, but this is often extended. This is more popular when an Investor needs to complete by a fixed date and is waiting for funds, therefore a Bridging Loan would be a short term fix. This was also a popular choice when Investors were able to arrange day-one re-mortgages, however these have disappeared.
These are very complex and not very popular due to not many understanding them. In essence, as option is the right to purchase a property within a fixed term, so for example an investor would pay an option premium to the vendor to have a right to purchase the property at some future point, for example two years at a fixed price. If the Investor fails to purchase the property within that time frame, then the option premium paid is kept by the Vendor. You may see companies advertising that you can buy a property for £1.00, this is based around options and rent to buy schemes, but in our opinion these are not very ethical and hard to implement. A better use of options is for the purchase of Land or a building where a premium is paid if planning consent is obtained, thus making the property a worth-while purchase, but without the planning consent, the property is worthless to the developer.
Whilst traditional Lenders are reluctant to loan money in the same fashion as before, many Property investors have sought the help of Business Angels for investment money in the form of a Joint Venture. Usually the Investor will have a property deal ready to buy and the property is later sold and the profit split.
There are many different types of mortgages available, however we have listed the main types associated with Buy to Let purchases. Read more about the different types of Mortgages and also find out what Consent to Let means...