As a landlord, securing a buy-to-let mortgage is one of the most important steps you'll need to take before purchasing a property. Although some investors may be cash buyers, it's estimated that the vast majority of landlords finance their property acquisitions through specialist buy-to-let mortgages.
Once you've secured a mortgage and let your property, it's crucial that you meet your mortgage repayments each month - fees that are likely to represent one of your biggest regular outgoings.
Maintaining your buy-to-let mortgage will also have an impact on your finances - do you have a tracker or fixed-rate agreement and does it include early repayment charges?
Finding a better buy-to-let mortgage deal at any point during the time you're letting a property could save you money. And if you're looking to expand your portfolio in the future, you'll need to compare products and decide which option is best for you.
Of course, you can make these decisions on your own. However, you may want to seek the expertise of a specialist buy-to-let mortgage broker. Below, we discuss some of the pros and cons associated with going it alone or employing the services of a broker...
Does more buy-to-let products mean better access?
Since the advent of buy-to-let, its specialist mortgage market has grown rapidly and consistently. According to the latest figures from Moneyfacts, the number of products for first-time landlords has reached an all-time high.
There were 645 buy-to-let mortgage products for first-time landlords in 2014, a figure which has increased to over 1,400 now. The number of new products this year alone had already reached 137 by the start of July.
Meanwhile, Moneyfacts data also shows that the total number of buy-to-let mortgage products reached a 12-year-high this year at 2,396.
The rise of the buy-to-let mortgage sector means there is now unprecedented choice for landlords. While this is positive news, it can also make it hard to navigate the market.
This is where a professional broker can provide valuable guidance and access to the right products for your circumstances.
The market is becoming increasingly complex
Another reason it could be beneficial for you to employ the services of a specialist broker when seeking a buy-to-let mortgage is the significant changes that have taken place across the marketplace in recent years.
This evolution - designed to make the market more fair, transparent and competitive - has made the process of getting a buy-to-let mortgage more complicated and potentially more time-consuming.
Firstly, since 2017, the amount of buy-to-let mortgage interest tax relief landlords can claim has been gradually phased out until it reaches the basic rate of income tax (20%) next year. This change has had huge implications for landlords and the profitability of their portfolios.
With this in mind, whenever you're considering your buy-to-let mortgage you need to think about this issue and how it will affect you. The advice of a broker could be invaluable here. For example, they could suggest that you incorporate your portfolio to reduce the impact of the Government's tax changes.
On top of the mortgage interest tax relief changes, the Bank of England's Prudential Regulatory Authority has also made a number of changes to the mortgage application process over the last few years.
In January 2017, new rules were introduced requiring lenders to ensure landlords can pass more stringent ‘stress tests’ before they are granted buy-to-let mortgage finance.
The rules have since been extended to cover portfolio landlords, who now also have to provide additional financial information before they can get a buy-to-let mortgage.
If you're not confident about the mortgage application process, it could be worth seeking some impartial, expert advice before you get started.
How much do buy-to-let mortgages cost?
It's important to keep up-to-date with mortgage costs and average rates so that you can identify the best times to stick with what you've got and the best times to switch.
For some time now, mortgage rates have been close to record lows, which is great news for landlords looking to take out a new mortgage or switch their existing deal.
According to recent product data analysis from Mortgage Brain, the UK market remains stable, although buy-to-let mortgage costs have started to fall further in some instances.
At the start of July, the cost of a 60% Loan-To-Value (LTV) two-year Tracker buy-to-let mortgage, for example, was 3% lower than it was at the beginning of April. The cost of the same product with a 70% LTV dropped by 2% during the same period, while the rate for the same product at 80% LTV fell by 0.5%.
This reduction in cost could provide buy-to-let borrowers with a potential annualised saving of £234, £144 and £36 respectively on a £150k mortgage.
A specialist broker will be able to keep you informed about mortgage costs. However, if you want to find out for yourself there is plenty of information online via industry news sites and specialist buy-to-let mortgage firms.
What are the potential downsides of using a broker?
The principal downside to using a broker is the potential additional cost of their services. Organising directly with a lender could also save you time as it cuts out the broker's role as someone negotiating the transaction between two parties. Not all brokers charge a fee so it could pay to shop around. One77 Mortgages* are one such broker who do not charge fees to Landlords and are able to offer an advised mortgage service to Landlords.
A number of recent studies and figures suggest that the rental market is shifting towards a makeup of experienced, professional landlords. For example, according to Paragon, its proportion of 'complex' buy-to-let completions – via customers using corporate structures or running large portfolios - increased from 72% to 88% in the first half of 2019 compared to the same period in 2018.
It added that lending to experienced, professional landlords represented 92% of its future business at the end of March this year.
This could mean that a higher number of landlords already know what they're doing when it comes to buy-to-let mortgages and could be keen to save time, money and have more control over the transaction.
If you do decide to employ the services of a professional broker, make sure you work with someone reputable who has the relevant accreditation and credentials.
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