Take mortgage advice if you are a buy to let landlord
Thursday 25 May, 2023
In this article Katherine Mumford, our mortgage adviser offering mortgage advice in Tottenham, North London, reviews the buy to let mortgage market.
Katherine Mumford, mortgage broker in North London said: ‘If you are a commercial investor looking for mortgage advice it’s important to contact your Thomas Oliver mortgage broking team at least six months before your buy to let mortgage deal renews. The buy to let mortgage market is constantly changing so the sooner you call us on 01707 872000 the quicker we can review the best mortgage deals for your financial circumstances.’
The issues for landlords exiting fixed rate products in 2023?
Interest rates are now averaging 5.81% compared to around 3% twelve months ago.* This is a concern for anyone needing a mortgage as it affects the maximum loan available to you. It will also affect the amount of profit you can make from your buy to let investment. As the majority of buy to let mortgages are interest only loans you will not have the opportunity to extend the payment term which would reduce your monthly payments. Also adding another applicant to the mortgage would not reduce the monthly amount you owe as the buy to let loan size is dependent on rental income not personal income.
What can buy to let landlords do to help?
There are a few options buy to let investors can consider if they are looking to renew their mortgage this year.
Mortgage rate switching
Many clients are deciding to stay with their current mortgage lender but take out a new product with their lender, this is called a rate switch. This benefits the landlord because it removes the rental income impact on the maximum loan size you can borrow. The client can sometimes also save money on other potential re-mortgaging costs for example, broker fees, legal fees, and survey costs.
Change the mortgage to an HMO mortgage
The landlord could convert the mortgage to a house in multiple occupation (HMO). An HMO applies if both of the following are true. At least three tenants live in the property, forming more than one household and the toilet, bathroom and kitchen facilities are all shared by all tenants.
Converting the mortgage to an HMO will incur initial start-up costs, but once it is running the profits from an HMO are significantly higher.
For example, if a four-bedroom property in Tottenham London is rented to a family the rental cost is approximately between £2,200-£2,400. The same property could currently be rented out as a four-bedroom property with different tenants for £800-£860 per room which would provide between £3,200 and £3,440 per month rent.
Mortgage lenders who offer traditional buy to let mortgages also normally offer HMO mortgages too. Traditionally HMO products were more expensive but that isn’t necessarily the case now.
Katherine Mumford, mortgage broker in Tottenham London continued: ‘As the article suggest although it is a difficult market for buy to let investors there are still options available in the short-term while interest rates remain high. Many buy to let investors we talk to are accepting a fall in profits over the short-term but believe that there will be long-term capital gains once economic growth resumes. If you are a buy to let investor and are undecided what to do when your mortgage renews, please contact our mortgage broking team on 01707 872000 and we can review your mortgage options.’
In Summary…
There are many options for buy to let investors when they have to renew their mortgage deal. The best option is to act early and call your Thomas Oliver mortgage broking team for expert mortgage advice.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.
*Data obtained from https://www.thisismoney.co.uk/money/buytolet/article-11826619/Greater-buy-let-mortgage-choice-rates-remain-high.html
Approved by The Openwork Partnership on 16/05/2023.
