Clever Mortgage Offerings

You might have spotted an article in the Financial Times last week about the ‘buy-to-let equation’ and how banks are, on the surface, starting to ease up their credit offerings. However, many banks are being very canny about the way in which they offer to landlords.

What’s the situation?

A number of banks who have increased their highest loan-to-value ratios to 80%: that is, if you wish to borrow to fund a £200,000 property then they will offer 80% of this as a mortgage – that’s £160,000. You’ll need to stump up the remaining £40k as a deposit. Though it sounds like a good deal at the moment, banks are also requiring very high yields from rental properties and, without doing too much of the maths, landlords are being required to let at yields which match or exceed the mortgage rate.

A tough job

With most mortgage rates at around 6%, there are only a select number of places in the country where borrowing this kind of money is possible: the average yield in the UK is around 5% according to the LSL index last week. As a landlord, this kind of deal can really only makes sense if you can make exceptional income from your property.

Reading between the lines

It’s really important to check out the small print of mortgages at the moment and don’t be attracted by a headline figure. Be sure to investigate whether fines, penalties or even interest charges are applied when looking at mortgages like this and strongly consider investing in rent guarantee insurance. With margins as tight as those on offer from some lenders it’s difficult to conceive a sound investment without it.

Though easing credit is generally a good sign for landlords who are looking to expand their portfolios and move on as property investors, it’s always important to investigate a number of options before you agree to a deal. The landlord’s most important weapon is always time, and if you don’t see the deal you like today then wait until tomorrow – the market can only ease up.