One could forgive property investors for thinking they were the target of a bounty, given the amount of legislative change currently engulfing the rental sector.
We won’t go over ground that is already well-trodden, but maintenance and repair deductibility, mortgage tax relief regulations, and the forthcoming Energy Performance Certificate rule changes are just a few things hitting landlords where it hurts most—in the pocket.
However, you can still implement crucial strategies to expand your portfolio despite legal restrictions. Here are our top tips for doing just that:
A bigger deposit
The Prudential Regulation Authority rules state that lenders must assess a landlord’s ability to afford a buy-to-let mortgage—and how do they do this? They work with a system that assumes you are paying an interest rate 2% higher than you actually are. Therefore, if your interest rate is 4.5%, the system will assess your affordability at 6.5%. The minimum assessment percentage is 5.5%.
Furthermore, you must demonstrate that your rental income covers the mortgage by at least 125%, with many lenders using 140% as their benchmark number.
Paying a larger deposit will offset the amount of mortgage interest you need to cover with rent; an extra £30,000 in deposit could make all the difference.
Use a mortgage adviser
Seek out the expertise of a buy-to-let mortgage adviser, who can guide you through the property investment process as it stands now following all the changes to rules, regulations, and legislation. When our car breaks down, we call the AA or the RAC. When your chances of growing your property portfolio start to misfire, it’s always worth bringing in the experts to get things running smoothly again.
Go fixed
Fixed-rate mortgages aren’t for everyone; they often have higher product fees and increased early-redemption penalties. You pay for the assurance of knowing your monthly budget.
But in these uncertain times, with Brexit on the horizon and many in the know predicting a slow yet steady rise in interest rates, it could pay to have the security of a five-year fixed-rate loan.
But always make sure a product is the right one for you; as outlined above, use a BTL broker.
Get your house in order
With any new lending regulation comes an increase in paperwork, so with all the new rules now partially in place or fully active, it’s worth getting all your documentation sorted if you’re considering increasing your portfolio.
Lenders must see everything, and if you already own four or more buy-to-let properties, you must provide income and mortgage details for each one every time you apply for a new mortgage. It’s a mountain of extra work for lenders, so having your side of the bargain in good shape can give you a solid head start.
If you have any questions about a new property investment opportunity or a buy-to-let mortgage, speak to your local Martin & Co office today.
