Buy to let mortgages are popular in the UK. For the seasoned investor, if 100% mortgages buy to let are properly handled, it can be a source of substantial investment that will serve as a retirement fund. It can also provide great relief in times of monetary difficulties.
Financial institutions allow individuals to buy property with the sole aim of letting it out. Not all lenders provide buy to let mortgages. Even if they do, they do not offer 100% buy to let mortgages. They usually demand a down payment of 15 – 20%, sometimes even 25%. Some lenders, though not common, offer 100% buy to let mortgages for the borrowers.
How do they do it? Some 100% buy to let mortgage offers requires that the applicant must own a house. The extra money required for the down payment is got from that house. Of course, the applicant should have sufficient equity in the property. Some lenders arrange a bridging loan to make the amount for the deposit. The interest rates are more favourable when the amount of initial deposit made by the borrower is higher.
Once the borrower wants to make a foray into the 100% buy to let mortgages market, the following are some points to be kept in mind to help get the best deal:
• Make a thorough study of all the rates and options available in the market. Check to see if 100% buy to let mortgage lenders are offering products. It is a good idea to do an online search and get the different product listings and quotes from the lenders. Price comparison sites are available that can be of great help.
• Find out how the extra deposit money is going to be arranged to cover the 100% mortgage.
• Understand the mortgage product well and the maximum amount of loan that will be made available. Most lenders have a minimum and maximum loan size. Most loans have minimum age restrictions and there may be charges for early settlement as well.
In the case of 100% buy to let mortgages, the loan is for the full value of the property. When a borrower opts for such a loan, the lender has to be clear about the fact that the borrower can afford to make the repayments without default. Whereas some lenders insist that the applicants should not have a bad credit history, there are other lenders who take a risk and advance the full loan amount for applicants with a not-so-good credit profile.
The 100% buy to let mortgages do carry a higher risk for the lender. A characteristic risk is can arise due to negative equity for the lender. If the real estate market plummets soon after the loan is availed of, the value of the property is less than the loan amount. If the borrower stops making repayments, the lender is usually forced to sell the property. Such a sale is likely to be of lower value resulting in a loss for the lender. The lenders expect the monthly revenue of the property to be more than 125% of the interest paid monthly.
Factoring in the 100% loan advance and the negative equity risk, lenders typically charge higher rates of interest for 100% buy to let mortgages. Mortgages where a down payment is made come with lower interest rates. Some lenders also insist on payment of a mortgage indemnity premium by the borrower. The interest rates for these mortgages may be discounted, fixed, variable, capped, etc. Lenders welcome all types of applicants including limited companies, individuals holding real estate investment portfolios, etc.
It is a good idea to seek the services of an experienced buy-to-let mortgage broker in case the applicant does not have the time, experience or convenience to select the product that will suit their individual needs. The bigger buy-to-let mortgage companies also offer services of dedicated advisors and 24/7 call centres to address queries and grievances of customers and would-be-borrowers.
Summarizing, the steps in acquiring 100% mortgages buy-to-let property is the following:
• Be clear about the amount that can be invested.
• Ensure that all costs, indirect and direct are factored in.
• Research the market thoroughly to understand mortgage products.
• Identify a lender who is trustworthy and offers the right product.
• Select a suitable property.
• Purchase the property.
Without a clear repayment program in hand, getting into 100% mortgages buy to let deals are likely to be risky and costly.
