I met up with my mortgage broker last week to discuss re-mortgaging one
of my buy-to-let properties whose mortgage was about to move onto its (not very
competitive) Standard Variable Rate.
It gave me a chance to compare the various mortgage products out there,
whilst bemoaning the fact that banks lend money to homeowners cheaper than they
do to landlords.
For
example, the cheapest five year fixed rate mortgage at 75% loan-to-value will
cost a homeowner 1.74% per year in interest. In comparison, it will cost a buy-to-let
investor 2.79% (that’s 60% more!).
The
bizarre thing is that the lender in both these examples is HSBC. So it’s the
same lender using their same money, with the same amount of equity put in by
the buyer, but the bank will charge 60% more to a landlord than to a first-time
buyer or homeowner.
The
supposed reasoning for this discrepancy is that buy-to-let mortgages are
‘riskier’ to the lender. With thorough tenant referencing and even rent
protection insurance, is this really the case though, versus a first-time buyer
who may have no experience, nor the budget leftover, of running a property?
In
fact, the lending rates are so misaligned that a first-time buyer with just a
10% deposit can borrow money cheaper than an experienced landlord with a 25%
deposit!
Whilst
I’m not financially qualified to give advice, it is clear that a landlord who
wishes to borrow money to invest in a buy-to-let property would be wise to
evaluate whether this can be done by drawing equity from their own home first.
This would allow them access to the preferential rates on offer, rather than
automatically going down the more expensive buy-to-let mortgage route.
The
money borrowed is still tax deductible in the same way as a buy-to-let mortgage
would be, if it’s used for the purchase of a rental property. And whilst most
residential mortgages require the capital to be repaid (as opposed to most
buy-to-let mortgages that are interest-only) there are some interest-only
residential mortgages available if you have enough equity in the property.
The fact is though, whatever your reason for buying
a property, it has never been so cheap to borrow money. The biggest issue people
face is raising the large deposit, alongside jumping through all the hoops necessary
to access the best mortgage rates.
If you’re thinking of buying a rental property and
would like to discuss how you can maximise your returns, please get in touch.
Clive Janes, CRJ Lettings.
www.crjlettings.co.uk
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If you are looking for an agent that is well-established, professional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.
E-mail me on clive@crjlettings.co.uk or call 01243 624 599.
Don't forget to visit the links below to view my previous buy-to-let deals and Chichester Property News articles:
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c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP
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