Do I need a broker?
Are you thinking of trying to get a new buy-to-let mortgage or even remortgaging one of your existing properties?
Well do you need a mortgage broker?
The clear answer is NO!
The Internet has made it perfectly possible to find a mortgage and then apply direct to the lender. Some of the best sites for sourcing buy-to-let mortgages would be obviously Property Hawk BTL Mortgages, but also Moneynet and Moneyfacts.
These sites allow you to see pretty much the same information as any mortgage broker and select the mortgage that suites your investment scenario. It’s worth remembering that there are some mortgages, often the best deals can’t be obtained direct from the lender. You will need to apply through an intermediary even if you have sourced it directly.
Finding a mortgage
Lenders put certain restrictions on mortgages, firstly there is the limit on the loan size, Loan To Value (LTV) which is used to assess the affordability of the loan on the basis of the size of the loan in relation to the value of the property. The maximum LTV has fallen back to typically 70% since the credit crunch. However one lender is once again offering an 85% LTV product. Chloe Taverner Head of Marketing at our BTL Mortgages advises:
“There is currently only one 85% loan-to-value product which is with buy-to-let lender, Kensington. It is a 5.99% 2 year fixed rate with a 2.5% arrangement fee. However, the rental calculation is quite high at 120% at 5.99% and would require a rental yield of 6.11% (average rental yields are 5.14% according to a recent ARLA index) e.g. To obtain a loan of 85% on a property valued at £150,000, the property would need to achieve a rental income of at least £764 per month.”
There always seems to be a trade off with higher LTV mortgages, often these mortgages will only come at higher rates of interest and with higher application fees. Landlords may find that they are only worthwhile if they are short on equity or are confident that a highly geared strategy is the best way to go.
The other constraint placed on the loan size is the rental cover. This is a measure of the projected rent of the buy-to-let in relation to the size of the mortgage payments. Typically the hurdle for a mortgage company is 125%. Some lenders will be happy to accept the current interest rate, others use a notional interest rate reflecting the average interest rate over several years. The idea behind this is that it takes account of the impact on future interest rate rises and other management costs on the ability of landlords to cover their mortgage payments. This will potentially impact on the suitability of the mortgage particularly where the projected rent is relatively low in relation to the purchase price (low rental yield).
Some lenders still base their affordability assessment on the individual’s income in the same way you would be assessed for a personal mortgage. These mortgages are based on a landlords’ income and generally takes no account of the rent generation from the proposed buy-to-let. For this reason they are really only useful for high income earners or those landlords who have already paid off their residential mortgage and that are looking to buy only one or a small number of investment properties. Many lenders now have limits in place on the number of loans that a landlord can take out with them or their sister companies; so portfolio landlords need to be aware of what these are before applying.
I’ve made dozens of mortgage applications in my time. Some have been direct without a mortgage broker; others I’ve employed a mortgage broker, including some of the industry leading names, Savills private finance and Mortgages For Business. The downside with using these big names are that whilst their advice is good; they often charge a relatively high brokers fee. This often starts at around the 400 pounds mark for a typical mortgage; which is fine if you are buying a 300 grand buy-to-let. If you are buying a 60k northern terrace it’s a lot.
Individual mortgage brokers have a considerable amount of discretion given that they work partly on commission. If you can demonstrate to the broker that you have a reasonable sized portfolio or will be buying more properties in the future and therefore will generate more commission there is every chance that you will be able to negotiate down the commission rate. Give it a go anyway.
The advantage of using a mortgage brokers is that they will help you navigate some of the complexities of the mortgage market. For instance, by searching yourself on the Internet you may come up with what you think is the perfect mortgage for your needs. However, be warned that some lenders are definitely easier to deal with than others. A professional mortgage broker will know which ones these are and be able to smooth the process through for you.
NO Broker FEE
The more competitive mortgage broking market has meant that mortgage brokers have had to chop fees. Property Hawk Mortgages now offers a full mortgage broker service without any broker fees at all. This means that no only can you search the whole market of over 300 buy-to-let mortgages, but if there is something specific you are looking for or you have not got the time to wade through all the different products then you can just phone or email to get tailored advice that wont cost you anything.
Being a self confessed tight landlord; I like the sound of that.