If you want to invest in buy-to-let property, you will probably need a commercial mortgage. If you are new to this type of investment, there are a few matters to consider before applying.
A mortgage lender needs to assess whether you can afford the commercial mortgage, and it should be noted that the affordably rules for buy-to-let mortgages are stricter than for a standard mortgage.
Most lenders have introduced new affordably rules that mean rents need to cover at least 135% of the mortgage repayments at a theoretical 5.5% interest rate.
Making a profit
Of course, being a landlord is not just a question of being able to afford to repay the mortgage, but making money too.
To assess your potential profit, you need to make a business plan that will include mortgage repayments and all the other costs such as letting agents’ fees (if you use one), maintenance, safety checks and insurance.
You will pay stamp duty of 3% of the property’s value. Arrangement fees for the mortgage and legal fees are also payable. You will be able to claim tax relief on the commercial mortgage interest payments at a standard rate of 20%.
Subtracting all your expenses from the rental income provides you with your profit margin. The property may also rise in value and this will contribute to the finances of your business.
There may be periods of time when the property is vacant as one tenant leaves and another has yet to be found. Vacant periods will obviously reduce your profits.
Although it can be complicated to make sure that a buy-to-let property investment is profitable, this has not put off landlords. Buying a property in the right location at the right price, and a with low interest commercial mortgage, is the key to making a profit.
Most lenders have restrictions on their lending and will require property to be of a minimum value. This can be between £40,000 to £100,000. For most property deals, this will not be an issue as these minimum values are well below the average cost of property.
Some lenders have restrictions on the type of properties that they will consider. These can include concrete ex-local authority properties and new build flats.
Some lenders will limit the loan according to the number of proprieties you own. Once over a certain number, they may either refuse the loan application or the restrict maximum amount they will allow you to borrow.
Old people can apply for commercial mortgages, but if you are aged between 70 and 90, the mortgage length will be short.
Use a mortgage broker
The best way to apply for a commercial mortgage is through a mortgage broker. At Ascot Mortgages, we will look at your individual circumstances and recommend the best deal for you.
If you have the urge to become a landlord, talk to Ascot about all your finance options. We’re the leading experts in commercial mortgage finance.