Should you use your existing lender or switch?
One of the highest costs of investing in a property to let is likely to be the mortgage. To maximise rental profit, it is worth regularly reviewing whether your existing mortgage is offering the right deal for your circumstances.
In addition to regular reviews, there are certain times when it is advisable to check the rate you are paying versus what is on the market. This may mean considering switching mortgage products and to a new lender, or renegotiating a deal with the existing lender.
When should you review?
A key time to review mortgages is when the Bank of England changes the Bank Rate, as this can trigger lenders to review their mortgage interest rates. Since the credit crunch, the bank rate has been set at 0.5% - one of the lowest rates experienced in decades. Prior to the credit crunch, interest rates varied from 3.5% and 6%* and one building society’s standard variable mortgage rate varied from 5.35% to 7.6%** from 2000 to 2007. (this could be info from MAB)
Applying the variation on a standard variable rate from 5.35% to 7.6% to a £130,000 interest-only mortgage; the monthly cost would be £579.58 at the lowest rate and up to £823.33 at the highest – a difference of £243.75 per month or £2,925 per year. This amount could take a landlord from the position of making a healthy profit to just breaking even.
Another time to review mortgage options is when a ‘deal’, such as a fixed or discounted rate, is coming to an end.
Our specialist, regulated mortgage brokers can help to monitor deals that are suitable for your circumstances, taking into account the mortgage interest rate, any penalty payments and other costs associated with switching to a new product or lender.
On top of the mortgage costs, before a new lender will approve a loan on an investment property, they will normally request a formal valuation, which you may need to pay for.
Valuations can be simply be ‘desktop’, where the value is ascertained by researching sold prices for similar properties, or the lender may require that a Royal Institution of Chartered Surveyors qualified surveyor visits the property. There are also legal considerations, as you effectively take out a contract when you borrow money to invest in a property and the loan agreement has terms and conditions, which our specialist brokers can help ensure you understand.
When investing in a property to let out or remortgaging your existing portfolio, it is important to seek advice from an expert. Some lenders prefer to lend on homes being let to buy, while others are specifically focused on property investment and portfolio building.