Commercial

Buy to lets

There is a strong appetite to lend in the Buy to Let space with over 150 funders in the sector with many of the funders having headline grabbing special offers. It is not straight forward to work out which actually offer the best value whilst meeting the clients needs in terms debt quantum.

Buy to Let funding for landlords can be taken as an individual, partnership or Limited Company. When making a decision about which vehicle to fund your purchase through it is worth understanding what the funders lending considerations will be. These are as follows:

  1. Market Rent – when you apply for borrowing the funder will want to appoint its own valuer to assess not only the Open Market Valuation of the property but also what the market rent of the property will be. This Market Rent not the actual market rent will determine whether meeting the Loan Repayments is viable.
  2. Market Rent v Loan Repayments at Funders Default Rate – Funders wish to ensure that Loan Repayments can be met in the event of interest rates rising. Typically, we see funders sensitising on a total rate calculated on the margin (i.e. the amount the lender is looking to get above base rate on the deal) the Base Rate and an additional margin to cover potential interest rate rises. This is called the default rate. They will then look for this Default Monthly Interest to be covered by Market Rent by between 125% and 145%
  3. Limited Company or Sole Trader or Partnership – Typically if your rental property is owned in a Limited Company most funders will want Market Rent to cover Loan Repayments at their default rate by 125%. If your property is owned as a sole trader or in a partnership and you are a higher rate taxpayer, they will want to sensitise further by having Market Rent cover Loan Repayments between 140% to 145% – this can reduce the amount of borrowing available
  4. Variable Rate or Fixed Rate – If you take the funders 5-year fixed rate many of them will utilise that as their default rate. The 5 year fixed rate tends to be below the funders default rate and therefore by funding this way it increases your borrowing capacity up to a maximum of 75% Loan to Value.
FACTS

When deciding which funder to go with. Low headline interest rates do not necessarily mean it is the right deal. Add up all costs to ascertain which is the best deal. Then add these to your annual interest costs to work out which is the best deal. You need to take into account the following costs to get a true picture of which deal is the best for you:

Rates vary dependent on the product you select whether it be Tracker (a variable rate that changes with Bank of England Base Rate or the Funders Variable Rate) and 2,5,7 Year Fixed Rate. There is a rise in the offering of “Green Mortgages” which offer discounted rates for properties with an EPC rating of A to C.

Many funders will want an application fee to assess your proposition. Some will offer no application fees.

These are generally on a scale dependent upon the valuation of your property. There are funders which will provide free valuations as part of their offer.

again these vary widely dependent upon the funder. Some will be prepared to use your lawyers only; some will want to use lawyers on their panel on a joint representation basis and some will want to use their own lawyers to overview your lawyers’ work.

this maybe fixed in amount or be a percentage of the amount borrowed. Some funders will also allow you to add the fee to the Loan.

Be mindful also when selecting the right funder that many of the special offers will have exclusions such as:

  1. Age – Maximum ages may apply and the mortgage will not be able to stretch over that age limit.2.
  2. Adverse Credit – does nt have to mean County Court judgements, if you have missed a payment in the last 4 years on anything or you are not registered on the electoral role may preclude you obtaining funding.
  3. UK Citizen – for many you have to hold a British Passport or provide confirmation that you are a permanent resident in the UK.
  4. Purpose – restrictions can apply such as no consolidation of debt or not to be used for business purposes.
  5. The Property – for example it may not include Grade 1 or Grade 2 Listed Properties or next to a takeaway.
  6. Ownership Structure – If the ownership of your company is owned by another company or some of the shares are in a trust

At Autograph Finance by understanding everything about you and the property you are purchasing we can explore the market and find the most cost efficient, flexible solution tailored to your needs.

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