Investment Property Mortgages (Buy-to-Let)

The term describes properties that are bought on a buy-to-let (BTL) basis, where the property owner has no intention of living at the property, and is more interested in drawing an income either through rental profits or capital growth, over a short, medium, or long term period.

Property investment is considered to be a safer investment than equities as it has a long track record of strong growth and to be a safer investment option.

Summary Residential and Commercial BTL Mortgages

Suitable Property For Investment Property Mortgages

The term investment property is applicable to both the residential and commercial markets, and as such lending options are much broader.

Here we outline which lender options are available for various types of property, either RESidential or COMmercial.

BTL Lender Options

Lets start with residential investment mortgages as these are more common.

Residential Buy-to-Let Mortgages

These mortgages may be sourced from a wide variety of lenders of traditional residential mortgages, although, there is a hardcore of about 10 major BTL lenders who top the list in terms of interest rates charged, product flexibility, cost to arrange, and conditions of acceptance.

Each mortgage lender has its own criteria for lending, and changes in client re-mortgage behaviour, has led to Building Societies charging high upfront arrangement fees to maintain their profitability.

Another significant change is the way the lenders assess the risk of the application. Most lenders used to base their assessments on:

In those calculations, many lenders required the monthly rental income to equate to 125% of the cost of the mortgage, and based this analysis on an aggregated interest rate of 6%.

These days, some lenders have started taking disposable income into account with investment property mortgages, thus negating the 125% rule altogether, although some of the other considerations are still adhered to.

In selecting the most appropriate lender for residential buy-to-let purchases applicants need to take professional advice.

There are so many products on the market with differing acceptance criteria and costs, that an investor could easily find themselves paying disproportionate charges, and wiping out their profits over several years.

If the investor has a chequered credit history, this will also affect the choice of lenders, and subsequent rates that they may borrow at. That said, there is a product available for almost anyone... but at what cost?

Residential BTL Valuations

Residential Lenders will obtain a valuation from a pre-approved independent local company who provide market valuations on their behalf.

Today, valuations will often consult property websites that show recent movements in the road or area. It is therefore especially important that remortgage applicants with current Assured Shorthold Tenancy Agreements that back the application criteria, have these available for the valuer to view.

Further rental contracts from similar properties in the area, that show similar rental income figures, should be provided to the valuer, especially if the LTV/Rental Income equation is tight.

Valuations that come back showing a low-value can be challenged! If the valuer will not make a concession, a complaint can be made to the industry Ombudsman for a final decision.

Commercial Investment Property Mortgages

Commercial investment property typically has a higher access point, and has seen lower returns in the past 20 years than residential BTL investments.

That said, commercial property investments have seen stable and sustained growth in both the retail and industrial sectors over the period, and are considered by many to be a much safer and effortless investment than residential property.

When deciding on a commercial investment property the buyer needs to carefully assess the availability of premises in the local area.

Commercial property is typically a medium to long term investment product and is often slower to sell than a residential investment.

Investment property mortgages for commercial properties are available from a wide choice of lenders. Again, all lenders have their own criteria for acceptance.

When buying commercial property the buyer should attempt to enable a Lockout contract that mandates that the seller takes the property off the market, and holds the price. As part of the agreement the buyer warrants to complete the purchase within a reasonable time frame, often negotiated upfront.

As with residential BTL property, a valuation will be instructed by the lender. This will encompass both the value of the bricks and mortar and provide details of current rental income, and potential income from unfilled space.

The valuation will also provide a cost for re-building the property which can be used as a guide when requesting buildings insurance quotes.

As with investment property mortgages for industrial (owner occupied) premises, an applicant can expect to achieve a loan of up to 85% of the property value on many commercial property types.

Loans are available for leasehold and freehold buildings, and can be based on the applicant company accounts, or on a self-certified basis.

For More Information About Investment Property Mortgages

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