Setting Up Buy To let Mortgage

[Stroller]

I had a quote for an Interest Only mortgage last week from one of the major banks. The criteria that they have is as follows:

1) The maximum term is 15 years.
2) The monthly rental income has to be at least 130% of the monthly repayment.
3) There is a booking fee which varies with the amount that you borrow.

Is this common practice?

Thank You

[MrWoof]

130% return, yes, this is normal, also, most if not all lenders have a booking fee, one lender I use has just quoted me £499 as a fixed fee. As for 15 year max, no, the two lenders I have used will accept up to 30 years but if you use an interest only loan, the repayment is the same regardless of the term. Do a lot of research before getting a loan, one broker I no longer use keeps chasing me with offers, none of which are as good as I got myself by phoning round.
My favourite lender is Mortgage Trust, good deals, very friendly and helpful, best of all, I have interest only offset mortgages with them. My company bank account is not only free of charges but the balance is offset against the loan.

[Stroller]

Hello,

Thanks for your kind reply. So is it always best to use a broker? Also, please can you explain what you mean when you say "if you use an interest only loan, the repayment is the same regardless of the term"?

How do I decide whether to have an interest only or repayment mortgage?

Lastly, please can you explain what the rules are regarding the number of residential mortgages that you can have?


Thank you very much!!

[JohnSmith]

Hello,

Thanks for your kind reply. So is it always best to use a broker? Also, please can you explain what you mean when you say "if you use an interest only loan, the repayment is the same regardless of the term"?

How do I decide whether to have an interest only or repayment mortgage?

Lastly, please can you explain what the rules are regarding the number of residential mortgages that you can have?


Thank you very much!!

Depending on what sort of Broker you use, some offer advice. Usually a broker can be found who offers advice and will not charge as they receive commission from the lenders. Whether you choose repayment or interest only depends on how you plan on repaying the money borrowed. BTL mortgages you usually need around 25% of the property value as a deposit and there is no real limit on btl mortgages. You can only have one residential mortgage I believe as you can only officially be a resident in one as far as im aware.

Various sites like moneysupermarket.com will allow you to compare rates.

Good luck

[dazalock]

Hello,

Thanks for your kind reply. So is it always best to use a broker? Also, please can you explain what you mean when you say "if you use an interest only loan, the repayment is the same regardless of the term"?



If you have a 15 yr mortgage and paying interest only at say £500 per month, in 15 years time you will not have paid anything off the loan, and so still pay £500 per month (due to inflation it will seem less). So it doesnt matter if it is for 30 years, because the loan amount will be the same all the way through. With repayment, you pay a little off the load amount at the start, this reduces the interest the next month so you pay this towards the loan, and so on.....

[MrWoof]

It was my accountant who pointed me towards interest only mortgages. As an example of why I use them, I bought a property valued at £115,000 recently, it was sold new in 1977 for £17,000. My business plan is to use the money I would otherwise spend on capital repayments to build my portfolio and pay off the capital towards the end of the mortgage term when inflation has eaten into it. It also helps considerably in that when a lender wants to see a 130% return, I have a much lower repayment and can make that 130% with a lower deposit.
As for using a broker, they can often get better deals from individual lenders than we can but check around, that's not always the case. It also depends on how good the broker is, one that I tried had never heard of Mortgage Trust - the one I get best deals from!

[Moose]

A lot of lenders web sites explain some useful stuff and you can compare
the criteria for different loans in detail.Try mortgage-express.

[Grange]

1. My business plan is to use the money I would otherwise spend on capital repayments to build my portfolio and pay off the capital towards the end of the mortgage term when inflation has eaten into it.

2. 1It also helps considerably in that when a lender wants to see a 130% return, I have a much lower repayment and can make that 130% with a lower deposit.


1. I do not understand why you think it makes any difference. If you view your portfolio as a whole, you have the same level of debt and the same level of equity - whether you are paying off capital on one property or borrowing more for the second. Any bank looking at one house in your portfolio in isolation needs its head examining! And I'm sure the more you borrow from the same bank the better the rate you will get.

2. Do lenders really want to see 130% of the capital you are repaying as well as the interest? I doubt it somehow... but maybe the world is that mad.

[Tax Accountant]

Do lenders really want to see 130% of the capital you are repaying as well as the interest? I doubt it somehow... but maybe the world is that mad.

why shouldn't the lenders not require 130% cover for the repayments? If they lend on the basis that 100% of the rent = monthly repayments on the loan, what would happen if there are voids or rent arrears etc?

The 130% cover is quite standard and makes commercial sense.

Ramnik