Buy-to-Let Mortgages: Tips for Would-Be Landlords
This article is a guest post, written by SAM Conveyancing.
Buy to let mortgages are aimed at those wishing to become landlords and, understandably, the process for getting one is different from applying for a residential mortgage even if the conveyancing process is more or less exactly the same.
This article is aimed at those looking to enter this market and aims to set out what’s expected from you and, as importantly, what pitfalls to avoid.
Are you Eligible for a Buy to Let Mortgage?
Your mortgage lender will normally expect the following from you if you’re applying for a buy to let mortgage to buy a property to invest in:
Your rental income exceeds the mortgage
Your deposit is a minimum of 25% of the property’s selling price
Your credit score is ranked as ‘good’ at the very least
You will be aged at most 70 to 75-years-old or under at the end of the mortgage term
You own a residential home of your own
What are the Main Differences between Buy to Let Mortgages and Residential Mortgages?
Buy to let mortgages normally differ in the following ways from residential mortgages:
Interest rates on the mortgage loan are generally higher
Accompanying costs of mortgage valuations and product fees are normally greater
You need to have a minimum 25% deposit
They are normally granted on an ‘interest only’ basis: you aren’t compelled to pay off any of the principle each month but when the term finishes, you’ll have to pay off the whole sum entirely and have to plan for this
You are regarded as a ‘sophisticated investor’ by the Financial Conduct Authority (FCA) which means that you won’t benefit from the consumer protection which accompanies residential mortgages: most products are not FCA-regulated.
How Much Can You Borrow Using a Buy to Let Mortgage?
When calculating how much you can borrow, a prospective lender reviews your application using a variety of methods, involving both computer algorithms and manual inspection.
We’ve listed the main criteria here:
Deposit- As stated previously, this needs to be a minimum of 25% of the selling price and the more you reduce the loan-to-value ratio, the lower – and cheaper – the interest rate you will get.
Rental Income- The higher your projected rental income is adjudged to be, the more mortgage you’re likely to be granted. You can expect a lender to require this income to be 25-30% higher than the value of your required monthly mortgage repayments. Additionally, lenders are required to stress test whether you can still afford repayments if the Bank of England base rate was to rise by 4 to 5%. You therefore need to provide as much evidence as you can that your projected rental income is realistic. Ideally this would come from existing tenants but, failing that, from local letting agents.
Who Should You Approach for a Buy to Let Mortgage?
Naturally you can approach any lender offering this facility. You may wish, however, to consider initially approaching an independent mortgage broker with access to the whole of the market of mortgage products.
There are more than 3,000 mortgage products in existence so it’s well worth having an expert on your side to select the right product for you and one for which there is more likelihood of your application being successful.
Depending on the broker you choose, you may have to pay them directly but they may get their remuneration purely from the lender involved when your mortgage goes ahead.
If you’re looking to secure short-term finance for your next property project, check out Kuflink – an award-winning FCA approved provider of bridging loans.
It is recommended that you seek independent financial advice.
The Importance of Getting your Home Insurance Right
When it comes to buying the right home insurance cover for your needs, many of us get to work on an insurance comparison site and review the different prices and basic coverage details. Then, after a few minutes reading we click buy and often opt for one of the cheapest options.
However, with the Association of British Insurers (ABI) currently estimating that around 20% of homes in the UK are underinsured, it might be time to do a little more research to ensure you’re insured correctly.
“Home insurance is one of those important jobs that people don’t always find the time to do properly, but unfortunately that can become a problem for some when they need to make a claim,” said Wimbledon estate agent, Robert Holmes. “Even if you’ve had the same cover for years, its no guarantee its been the right cover and if you’ve been lucky enough never to make a claim, there’s no way you could know for certain, without a thorough check.”
Give your insurance provider a call
While the information you need about your home insurance cover is probably available online, sometimes it’s just easier to have a chat with someone who knows what they’re talking about. It can also be the quicker and more sensible option, particularly if you think you might have made a mistake or two in the past when arranging your insurance cover.
It can feel frustrating going over old ground with a firm you’ve been with for years. However, it could turn out to be a very worthwhile conversation. Of course, you’ll only discover that by the end of the chat, when you go through your cover and see if you need to make any changes or not.
Even if you don’t need to make any changes, you might have misunderstood a crucial detail relating to the conditions surrounding a potential claim that could have resulted in a problem in the future.
“Time spent checking your home insurance cover is right isn’t a waste of time, even if it turns out your cover is spot on,” said Plaza Estates. “It’s always good to be reassured that everything you’ve arranged is as it needs to be.”
Expect more from your insurer
However, even though its important that you know about and understand your home insurance cover, there is also more the insurance industry can do to help:
Avoid confusion.
Word important policy details clearly.
Ensure policy holders know when they have to and don’t have to pay excess.
Understand exactly what’s covered and what isn’t.
Indeed, Anne Kirk, marketing director for Swinton Insurance said in a recent interview that the insurance industry should be helping consumers – both customers and potential customers – to bridge the knowledge gap so they understand exactly what they need, what’s on offer and what it costs.
If the broader insurance industry can take on that attitude and work to give consumers clearer information and a better understanding of the insurance industry as a whole, along with their own specific policy, then Britons would likely feel more kindly towards insurers than many of them perhaps do at present.
“Taking time to understand your insurance cover is a job everyone should do, but if the industry were more consumer friendly, it would be a job that took less time and more Britons would feel confident about when choosing their insurance, too,” said Andrew Reeves.
This blog post is a guest feature, written by Property Division.
What is Peer-to-Peer Lending?
Money invested via P2P platforms financed in excess of 1,000 residential & commercial developments in 2016, resulting in a nationwide market valuation of £1.15bn
What is Peer-to-Peer Lending?
Peer-to-peer lending, sometimes referred to as P2P investing, is the practice of one individual or business lending money to another. P2P investing is fully FCA regulated in the UK and, according to a recent study, money invested via peer-to-peer platforms helped to finance in excess of 1,000 residential and commercial developments in 2016, resulting in a nationwide market valuation of £1.15 billion.
If you’d like to know more before you dip your toes in the water, we’ve put together the following easy-to-read explanation of everything you need to know about peer-to-peer investing!
What is a peer-to-peer platform?
P2P platforms function as an intermediary between borrowers and lenders, bringing those in search of finance together with individual lenders. Most platforms exist solely online and take security in the form of various assets, such as property.
Why choose P2P over a traditional savings account?
Put simply, peer-to-peer investors are likely to receive higher interest rates than most high street savings accounts can offer. In part, this is because peer-to-peer platforms’ online presence means their overheads are lower.
How involved are the investors?
Each platform varies and platforms often have multiple products, which will each require a different level of investor participation. As an example, with Kuflink’s Select-Invest, investors choose individual deals they’d like to invest in, whereas the Auto-Invest product diversifies their investment, as well as their risk, over a variety of deals.
In both cases, all that’s left for the investor to do after their initial investment is sit back and watch the interest accrue. *
Are borrowers subject to credit checks?
Yes, and platforms should have their own procedures to complete this. Credit checks usually assess an applicant’s creditworthiness based on their credit history, income and other relevant factors. In comparison with securing a high street loan, borrowers may find that they are accepted for peer-to-peer finance with lower credit scores.
What are the risks?
As with any investment, there is a level of risk associated with P2P lending. The level of risk depends largely on the individual deal or platform terms.
Kuflink loans are all secured against UK property and regulated by the FCA. To date, more than £13 million has been invested through the platform and Kuflink’s investors have never lost a penny! What’s more, Kuflink invests up to 20% in every deal, minimising investors’ exposure to risk. *
If you’d like to learn more about how you can earn up to 7.2% interest pa gross with Kuflink, sign up to the online platform today! *
*Capital is at risk. Rate correct as of 31/01/2018. Past performance does not guarantee future returns. It is recommended that you seek independent financial advice.
What is an Innovative Finance ISA?
Innovative Finance ISAs (IF-ISA) are the most recent addition to the ISA family, introduced by the UK Government in 2016. IF-ISAs give savers the opportunity to use their tax-free ISA allowance to invest in peer-to-peer opportunities. IF-ISAs can offer much higher interest rates than many traditional Cash ISAs and their introduction builds upon the popularity of the peer-to-peer sector, through which more than £10 billion has already been invested in the UK.
What makes an IF-ISA different to a Cash ISA?
Many traditional Cash ISAs typically offer below 1% interest pa, whereas IF-ISAs can offer much larger returns. For example, Kuflink customers can earn up to 5.35% interest pa* – that’s more than 5 times the average!
How are funds in my IF-ISA invested?
Funds invested in an IF-ISA are used for peer-to-peer lending, but the exact nature of the opportunity varies from ISA to ISA. Kuflink invests your funds on your behalf across a diversified pool of UK property-backed deals, which also diversifies investors’ risk. *
How much can I invest?
Each tax year, HMRC set a tax-free personal savings allowance, which currently stands at £20,000 for 2017/18.
Can I transfer money from an existing ISA?
Yes, you can transfer your money from an existing Cash ISA, Stocks and Shares ISA or Innovative Finance ISA without losing your tax-free wrapper. Kuflink provides fee-free transfers into its IF-ISA, although other providers (including your existing ISA provider) may charge to transfer your money.
To find out how a Kuflink IF-ISA could earn you up to 5.35% interest pa*, download our free, easy-to-read infographic!
*Capital is at risk. Past returns are not a guarantee for future returns. Rate based on 5-year fixed-term investment. Investors are encouraged to seek independent financial advice.
P2P Property Report Highlights Key Market Trends
The Cambridge Centre for Alternative Finance has recently published its eagerly-awaited 4th Annual UK Alternative Finance Industry Report, offering a uniquely detailed insight into the ever-growing UK AltFi market. These 4 key points illustrate the current position of P2P property lending in the UK:
Peer-to-Peer Property Investment Grew By 88% Between 2015-16
Described as ‘one of the largest drivers of the UK’s alternative finance industry’, P2P property lending is now the third largest sector in the AltiFi market, just behind business lending and consumer lending. Money invested via peer-to-peer platforms helped to finance in excess of 1,000 residential and commercial developments in 2016 alone, resulting in a total £1.15 billion market valuation for the UK.
Kuflink’s sustained growth has mirrored this upward trajectory, with more than £12m invested through its p2p platform since it launched in August 2016.
Men Aged 55+ Continue To Dominate the P2P Investment Market
Most peer-to-peer investment opportunities are accessible to everyone (for example, Kuflink allows investors to get started from just £100) although this report shows that certain demographics are dominating the market. Findings include:
Gender split for P2P property lending is 16% female and 84% male. In terms of actual invested funds, the gender split is 25% female and 75% male.
Age spread between investors is heavily weighted towards over 55s, with 12% aged under 35, 31% aged between 35-54 and 57% aged 55+
70% of investors in P2P property-backed deals have an undergraduate degree or higher
35% of investors have an annual income of £50,000 or above
Risk Perception in the P2P Property Lending Market
In comparison with the wider alternative finance market, the industry report found that P2P property lending is perceived as less risky than cryptocurrencies, forex, stocks and shares. However, investors perceive it to be of equal risk to buy-to-let property.
Kuflink strives to instil confidence in our opportunities, which is why we co-invest up to 20% alongside our community of investors in every deal!
Investor Preferences Are Evident for Peer-to-Peer Platforms
Research shows that when it comes to choosing peer-to-peer property deals, investors have very strong preferences. The most important investor needs were control, diversification and interest rates, and the report found that:
88% of investors prefer to control where their money goes and for how long
Kuflink’s Select-Invest offers a variety of property-backed deals with varying terms and gross annual interest of up to 7.2%*
88% of investors like to diversify their portfolio
Kuflink’s investors can choose to diversify their investment themselves with Select-Invest, or let Kuflink automatically diversify their portfolio, and their risk, with Auto-Invest or our IF-ISA.
90% of investors are influenced by available interest rates
Kuflink investors can earn up to 7.2% interest pa gross*, depending primarily on the level of risk associated with each opportunity.
Source: Cambridge Centre for Alternative Finance, 4th Annual UK Alternative Finance Industry Report
Sign up here to take a look at the peer-to-peer investment opportunities we have available.
*Capital is at risk. Rate correct as of 21/12/2017. Past performance is not necessarily a guide to future returns. Independent financial advice is recommended.
2018: The Year of the IF-ISA
You could be earning up to 5.35% interest pa* with an Innovative Finance ISA; the latest addition to the ISA family and a growing financial trend for 2018!
With bank rates at a constant low and inflation rising, your money could, in real terms, be losing value in a traditional savings account. If you are keen to earn a fantastic rate of interest from your savings this year, then an Innovative Finance ISA could be exactly what you’ve been looking for. Furthermore, with industry experts forecasting IF-ISAs to take off in 2018, there has never been a more opportune moment to consider alternative ways to earn a better return on your money. Don’t let your financial goals be among the 80% of New Year’s resolutions which are broken within the first 6 weeks!
What is an Innovative Finance ISA?
An Innovative Finance ISA (IF-ISA) is the most recent addition to the ISA family, introduced by the UK Government in 2016, giving you the opportunity to use your £20,000 annual ISA allowance† to invest in peer-to-peer opportunities with the added benefit of tax-free interest.* IF-ISAs can offer much higher interest rates than many traditional Cash ISAs and their introduction builds upon the popularity of the peer-to-peer sector, through which more than £10 billion has already been invested in the UK.
How are IF-ISAs different to traditional ISAs?
Many traditional ISAs typically offer below 1% interest pa, whereas IF-ISAs can offer much larger returns. For example, Kuflink’s customers earn up to 5.35% interest pa* – that’s more than 5 times the average! Funds you invest in an IF-ISA count towards your £20,000 per annum tax-free savings allowance. †
What are the key features of Kuflink’s IF-ISA?
As well as offering a higher rate of interest than traditional Cash ISAs, Kuflink’s IF-ISA provides a hassle-free way to make your money work harder for you:
Invest up to £20,000 pa tax free†
Invest from just £100
Invest for either 1, 3 or 5 years
Earn a fixed rate of interest up to 5.35% pa* depending on the term you choose
Transfer funds from your existing ISA provider for free**
No account management fees
We automatically diversify your investment, and your risk, across a portfolio of loans, generating interest from day one
Secured against bricks and mortar
Read more about Kuflink’s IF-ISA here
How does Kuflink’s IF-ISA allow you to benefit from house price growth?
Property experts are forecasting that UK house prices will rise by 13% in the next 5 years
Many believe that rising house prices only benefit property developers and landlords, but the continued growth of the UK property and rental markets provides security for Kuflink investors too! Funds invested in our IF-ISA are automatically diversified against various UK property-backed loans. As well as increasing the value of your investment backing, market growth helps to sustain a diverse portfolio of opportunities to suit our varied investor preferences.
At Kuflink, one of our top commitments for the New Year is to maintain that our investors have never lost a penny! Since our launch in August 2016 more than £11 million has been invested through our platform and more than 10,500 investments have been made, each resulting in solid returns for our investors.§
To earn up to 5.35% pa* register for a Kuflink IF-ISA today and ensure your 2018 gets off to a fantastic start.
*Capital is at risk. Rate based on 5-year fixed-term investment.
†Annual allowance set by HMRC for the 17/18 tax year
**Subject to exit fees from your existing ISA provider
§Past returns do not guarantee future returns. Investors are encouraged to seek independent financial advice.
Bridging market: Six predictions for 2018
“The bridging market is coming off a hugely successful 2017 and pipeline business going into January is the best that we at Kuflink have ever seen.
Housing and bridging will be boosted by Cabinet reshuffle, say Kuflink
Kuflink Bridging say it is ‘looking forward to increasing business volumes’ as the demand for short term lending has grown significantly over the past twelve months.
