Mortgage Options

We recommend you take advice over the choice of buy to let mortgage scheme. The difference between the various schemes can amount to a lot of money.

Free advice is available from Mortgages Direct. Please complete out Enquiry form

If you already have a buy to let mortgage, then we would recommend you review your mortgage at least annually and certainly at the end of any fixed or discount period. A buy to let remortgage is quite straightforward

Repayment Methods

While there are many different interest rate options, there are just two types of payment method; interest only and capital and interest (repayment).

With a capital and interest (repayment) mortgage each payment made pays both the interest and a small part of the capital. With this type of mortgage your mortgage loan will be paid off by the end of the term.

With an interest only mortgage you pay the interest only to the lender. So in 10 years time you will still owe exactly the same amount as you borrowed at the outset.

With an Interest only mortgage you will need a means of paying off your mortgage.

For buy to let property most lenders will accept that at some point in the future you will sell the property so Sale of Property can be the means of repayment.

Alternatively you could take out an investment to run alongside your mortgage, which you hope will pay off the loan at the end of the term. We recommend that you take financial advice from an Independent Financial Adviser regarding suitable investments.

You will pay back more interest to the lender with an Interest only mortgage, compared to capital and interest. This is because the loan is not reducing so the monthly interest charge will stay the same

The mortgage payments will be much lower with an interest only mortgage (see our mortgage calculator).

You should consider affordability, you may get a situation when the rental income stops. The tenant might be unable to pay, or you might be unable to let the property for some reason.

It is very important that you maintain your mortgage payments. If you miss one or more mortgage payments your credit file may be impaired and this may prevent you from changing your mortgage in the future

Interest rate Options

There are several mortgage interest rate options available:

Standard Variable rate; As the name implies, this is the lender’s standard variable interest rate. The standard variable rates tend NOT to be very competitive and its often the rate that your mortgage reverts to at the end of any fixed or discount period

Fixed Rate allows you to fix the interest rate of your loan so that for a set period you have the reassurance of knowing that your mortgage payments will not alter.

A Capped Rate fixes a upper ceiling to the interest rates so that in the event of rising interest rates you will not pay any more than the limit set by the cap. If rates fall below the cap then your mortgage payments will reduce. Capped rates are currently not available

Fixed and Capped rate mortgages are useful where you need to know that your mortgage payments will not exceed a set figure.

Discounted Rate mortgages are variable rate mortgages with a discount to the standard variable interest rate for a set period.

A variation on the discounted variable rate is a tracker rate which tracks some standard rate – usually the Bank of England base rate for a set period.

A margin is added to the Bank of England base rate to give the pay rate. 

The Bank of England review the base rate every month and potentially could change the base rate higher or lower. A change in the base rate is likely to translate into higher mortgage rates for those that hold variable rate mortgages
As an incentive to attract new clients some companies may offer a lump sum Cash back. These are obviously useful if cash is needed at the outset, however the opening interest rates may not be as attractive.

Flexible mortgages , also termed Australian mortgages are sometimes available. They enable the borrower to actively manage their mortgage perhaps by altering the monthly payments or by paying off lump sums. Other options include the facility to take payment holidays and to borrow further amounts.

Early repayment charges

To attract new borrowers, mortgage lenders are likely to offer an introductory fixed or discounted interest rate. This will invariably cost the lender money. To protect their investment the lender may impose early repayment charges should the borrower redeem their mortgage within a specified period. These charges are likely to apply during the fixed or discount rate of a new mortgage.

Schemes are available which exclude these charges.

Investments

With a buy to let mortgage it is generally not required to take out an investment to repay your mortgage. Most lenders are happy with sale of property as the means of repayment

However you can take out a separate investment and use the proceeds of that investment to clear your mortgage.

We recommend that you seek advice from an Independent Financial Adviser if you are considering this option

Property types

A mortgage is agreed on the basis that the property is a good security. Lenders in general do not like lending on the following properties:

Property that requires any structural work or remedial works. If the property requires any significant work doing to it, then please make sure your advisor is aware of it.

Freehold Flats, Studio flats, Ex local authority flats, High rise flats, Flats above commercial premises (particularly food).

Non standard construction, ie. timber or concrete walls.
If the property you are considering falls into any of the above categories, please contact us.

Auction Properties

If you are considering buying a property at an auction. It is most important that you have a mortgage agreed before you bid for a property. On the fall of the hammer, you will be expected to pay a deposit (often 10%), with the balance paid within a short time period.
Your deposit may be lost if your mortgage does not complete within this time period.
Please read carefully the terms specified by the auction provider.

We do not provide advice for the purchase of properties through an auction