“Interest only” means that you’re only paying the interest on the borrowed money and not repaying the original money that was lent. This keeps the monthly mortgage payments low; however, at the end of the mortgage term, you’ll need to repay the lender the money you’ve borrowed.
This can be done in several ways, either by remortgaging the property using a repayment mortgage, using your existing savings, switching to an equity release product or by selling the property, which is the most popular way. This is something we can discuss in detail, and we can then decide together which is the best way forward for you and your circumstances.
Interest rates are higher
In comparison to residential mortgage rates, interest rates for investment properties tend to be slightly higher. Over recent years, we’ve seen mortgage rates for landlords gradually decrease; however, on average, they’re higher than standard mortgage rates.
Personal income vs rental income
Unlike a tradition residential mortgage, lenders are less concerned about your personal income and focus more on the projected rental income that the property will achieve. We have access to lenders who can offer buy-to-let mortgages to clients with no minimum income level, but some require between £11,000.00 and £25,000.00 as a minimum. Each lender is different, and some will even let you add some of your personal income to the projected rental income in order to borrow a larger mortgage for purchasing a rental property.
Ongoing expenses to consider – insurance, void periods and managing agents’ fees
Purchasing a rental property can be a great investment opportunity; however, being a landlord requires a bit of work. There are also expenses that need to be taken into consideration when becoming a landlord, such as buildings insurance for the property, dealing with void periods when a tenant leaves, and keeping the property up to date with legislation, gas safety and electrical certificates – and all of this is required on an ongoing basis.
The advice we normally give to landlords is to look for a local letting agent who can help you look after your investment for a fee. Letting agents normally charge a percentage of the rental income each month in return for making sure the property is being looked after and is kept up to date with legislation. This allows you to go about your everyday business, doing what you do best, and with the letting agent doing what they do best!