Getting a Mortgage for a Buy to Let With Mortgage BrokerFebruary 20, 2022
Despite changes in taxes and stamp duty, it has reduced the profitability of buy to let; however, the return on investment in the properties market can be much higher than savings accounts and other investments. Getting a mortgage for a buy to let applicants is similar to regular mortgages with three main differences. Higher interest rates and fees, lower loan-to-value ratios, and interest-only mortgages are the main differences between buy to let mortgages and regular mortgages.
Lenders find a rental property riskier because most borrowers rely on rent to cover mortgage instalments. If the borrowers’ tenants have difficulty paying the rent, this can harm the mortgage repayment. Lenders, therefore, have special conditions and criteria, especially for first time buyers or first time homeowners.
Lenders’ criteria for getting a buy to let mortgage for first time buyers
First time buyers can get a buy to let mortgage, but securing a mortgage to let applicants can be more difficult for borrowers than if they already owned the property. This is because less buy to let mortgages are available to first time buyers. In addition, they may have to make a larger deposit. Some of the criteria and conditions that lenders consider for applicants for buy to let mortgages are:
- Lower LTV ratios, maximum age of the applicants and minimum income (rent, pension, employment, self-employment, contracting, etc.) are among the most important criteria in mortgages for first time buyers.
- Lenders will get identity information, the applicant’s address and related documents from borrowers to verify income.
- Most lenders need to be convinced that borrowers’ rental property interest covers at least 125% or even 145% of their mortgage payments before offering it to borrowers.
- Lenders’ requirements for proof of income for mortgage applications vary. But typically, revenue is proven in the following ways:
- Payslips: Although lenders accept less, standard terms include quarterly and two-year payslips.
- Contract: Not all lenders need to see a copy of the borrower’s contract if a payslip is available. But for those looking to get a mortgage to let applicants with a new job.
- Bank statements: Most lenders also want to see the net income shown on their payroll/self-employment receipts to match the figures in the relevant bank account for at least the last three months.
- Many lenders prefer to offer their mortgages through brokers. In this way, they reduce their risk in lenders’ accreditation.
The Function Of Brokers In Getting A Buy To Let Mortgage
For many homeowners who want to rent out their property, getting a mortgage for a buy to let is very important. Lenders consider special conditions for granting these mortgages and have certain criteria for evaluating the applicants of these mortgages. On the other hand, due to the complexity of buy to let mortgages, specialised brokers of mortgages for first time buyers in different mortgage stages help first time buyers choose products with appropriate rates and conditions based on their needs and financial conditions. Some of the help that brokers help borrowers include:
1. The mortgage amount
The amount lenders pay to borrowers for buy to let mortgages depends on several factors. The borrower’s expected income from the rental amount, the borrower’s credit score and the amount of deposit paid are among the most important criteria for lenders to determine the mortgage amount for first time buyers. Lenders evaluate borrowers based on these criteria. To this end, the borrowers must make every effort to prove their affordability to the lenders. The buy to let mortgage broker is familiar with the lenders’ criteria and prepares the borrower’s income documents in such a way as to prove the borrower’s actual income to the lenders.
2. Borrowing limit
Many lenders set a certain limit for buy to let mortgages. A limited number of lenders offer a million mortgages for first time buyers. But buy to let mortgage brokers recognise lenders who offer special buy to let mortgages and consider the right conditions for first time buyers.
3. Mortgage deposit
One of the most important factors in buy to let mortgages is the deposit required for first time buyers. Deposit is a major barrier for borrowers to buy to let mortgages because lenders usually have low LTV ratios. But some lenders make fewer deposits for getting a mortgage for a buy to let applicants. However, the number of these lenders is limited, and borrowers have to do extensive market research.
4. Mortgage rate
Buy to let mortgages are classified into fixed and variable rates in terms of interest rates. A fixed-rate transaction can reassure borrowers because they know their monthly repayments will be. But tracker mortgages (variable rates) can be cheaper overall. Many lenders offer variable-rate mortgages to buy to let mortgage applicants, and a limited number of lenders offer fixed rates. Using a specialist buy lets mortgage brokers conduct extensive market research and introduce fixed-rate mortgages for first time buyers.
5. Type of mortgage
Buy to let mortgages are divided into three types: interest only and repayment.
With interest-only mortgages, borrowers pay only the mortgage interest each month. This means that they will have to repay the amount they initially borrowed at the end of the mortgage term. Many investors choose to buy to let mortgages because, in this case, the rental income can pay the monthly payments related to the mortgage instalments. But while there are good conditions for dealing with interest-only, many borrowers plan to sell the property at the end of the mortgage period.
But if the housing market changes and the value of the borrowers’ property decreases, they will face serious losses because the principal amount of the mortgage remains and must be paid. In this case, with the mortgage repaid, the borrowers’ monthly payments will be higher because they will pay both the interest and part of the amount they have borrowed. But at the end of the mortgage period, the debt of the borrowers is repaid in full.
6. Credit history
Borrowers’ credit rating has a huge impact on the mortgage rate and the deal offered to the borrowers. Lenders look at borrowers’ credit history to check the borrower’s credit. If the borrowers have a poor credit history, they may need to improve their rating first. The mortgage broker reviews the borrower’s credit report before making a mortgage request and makes the necessary suggestions.
SWG Mortgage specialist advisors have extensive experience providing a mortgage for first time buyers advisory services. They are familiar with different lenders’ criteria and negotiate with lenders on the mortgage amount, borrowing, legal deposit, mortgage rate and type, and borrowers’ credit history.
There are many costs involved in getting a mortgage broker that should be considered. Of course, depending on product types, the lender, or the remortgage requirements, some of these costs may be eliminated. For example, paying a deposit is not mandatory to receive remortgages. Instead, some lenders use your stock as a deposit. But usually; the most crucial cost that the borrower has to pay is the cost of repaying your mortgage early. If your contract is not yet completed, lenders will usually ask for penalties for early termination of your contract. Of course, these costs vary between different lenders and products. Therefore, before doing anything, it is better to thoroughly review and analyze all the costs associated with obtaining a remortgage.
If you want to get higher LTV rates, you have a bad credit score, you do not know what documents to provide to lenders, and you are not aware of the type of mortgages, rates and terms of products available in the market, you can talk to SWG Mortgage advisors to make your choices with complete and clear vision.