3 buy-to-let questions you always wanted to ask a mortgage expert

From deposits and rental yields to own-name or limited company mortgages - there are many factors to consider when planning your property strategy as a buy-to-let landlord.

What percentage deposit should I aim for with a buy-to-let (BTL) mortgage?

This all depends on what you want to do. As a new property investor looking at BTL mortgages, you will only have so much money to invest and want it to go as far as possible.

Look at the rental potential of the properties you’re interested in - it can be worth considering an 80% loan-to-value (LTV) mortgage and splitting your deposit across two properties. Yes, you may pay a slightly higher interest rate, but you’ll own more property. Usually, you’re financially better off by having an additional property and paying a bit more on the mortgages.

If you want the best rate, then you need a bigger deposit. 75% LTV is where most of the banks are offering a good rate, but the best rates are at 60% LTV. There’s one lender that offers 85% LTV on BTL and it is expensive because they’ve got no competition. Regardless of the mortgage, the rental income on that property would need to make the mortgage repayments affordable to be attractive to the lender.

How important is rental yield vs. property value?

When you’re looking at a new property, the potential rental yield is very important. This can determine how much of a loan you can get on the property as it is the main consideration for lenders, irrespective of the value of the property. There’s no point buying a £1 million property when the rental only supports a £300k loan because that means you need to find a £700k deposit.

Carefully consider the area of the country you plan to invest in as this can determine your property strategy. The rent you can achieve in London, compared to the property value, means that you probably won’t get an 85% mortgage, because the rental value won’t cover the mortgage repayments. Whereas in the north of England, where rental yields compared to property value are typically higher, HMO rentals would cover the mortgage advance.

Property in London and the South East is all about the capital increases - you’re probably not going to make that much money on the rent, but you are likely to make money on the property values when you sell. Up in the North of England, the property value isn’t going to go up that much, but you’re going to get a better return on your investment. Try a mixture of both.

I own four properties - should I move them into a limited company?

Under the new regulations, if you have more than three properties you are now classed as a portfolio landlord. All that means is that the lender has to assess your mortgage application more like a business. Under the PRA, lenders have to look at a client’s cash-flow forecasts and accounts. You’d be hard-pushed to find an accountant who wouldn’t say a limited company mortgage is the best option in that scenario.

The thing that determines whether you should put property into a limited company is your tax position. A client who doesn’t already have an income could take advantage of their tax allowance and take out a mortgage in their own name. But if someone has a wage, then a limited company would be the best option. However, this is all best discussed with your accountant or a tax adviser before making a decision.

Here at Vincent Burch, we are an independent broker and offer whole of market advice.

We work in a regulated industry, which means you can be sure we offer you the best deal for your circumstances. There are more than 5,000 BTL mortgage products and we will always explain the reason to you when we advise on a particular lender.

Get in touch today to discuss your project: 01603 340644