June 13th, 2017. Ben Lloyd
Things to Consider When Buying an Investment Property
Are you considering investing in property? Well, before you compare investment mortgage quotes and sign on the dotted line to acquire finance, there are a few things we think you should know.
Consider the following before going any further:
1) Costs and Rental Income
Before you make an offer on a property, take the time to research the initial purchase cost of houses you are looking at, as well as the rent you are likely to get.
Buy-to-Let lenders typically want rent to cover a minimum of 125% of the mortgage repayments and require deposits from 15%-25%. LTV rates may be substantially higher than when buying a primary residence, with increased arrangement fees which will need to be covered by your initial investment.
Your experience may have an influence on which Buy-to-Let lenders will provide you with a Buy-to-Let mortgage. First-time landlords may find it difficult to obtain funding from the more mainstream funders, resulting in them needing to go to challenger banks where rates and fees may be higher.
Whilst it may seem obvious to a lot of people, knowing what tax bracket you are in (non-taxpayer, basic rate, higher rate, or additional rate) and the income you received in the last year (including that outside of any existing rental income received) will be a big help when sourcing a Buy-to-Let mortgage.
If purchasing or remortgaging a Buy-to-Let property, the Debt Service Cover Ratio (DSCR), also known as the rental cover percentage, will differ depending on the client’s tax status.
This can range from 125% of rental coverage for a non/basic rate taxpayer to 165% for an additional rate taxpayer – this can make a significant difference to the mortgage amount available, as this is driven by the rental income as well as the LTV.
In addition, if you receive other income, maybe from employment, then this can be put towards helping to service the monthly mortgage if the rental income is low or a higher mortgage amount is required.
It is also worth pointing out that most lenders will only require 125% rental coverage when purchasing in a Ltd company – as the tax status is irrelevant and may also have a minimum income requirement.
4) Ltd companies/LLPs
The market is predicted to become very open for Ltd company Buy-to-Lets this year as the new tax schemes fall in to place, with more lenders offering Ltd Buy-to-Let products and even dropping their rates to the level of their core products.
However, it is important to be aware that a lot of lenders will require the Ltd company (or SPV) to be set up correctly. This means that it must be a Ltd company or LLP, set up solely to own, buy, sell or let property. In addition, they should have the following SIC codes (Standard Industrial Classification codes): 68100, 68209 and 68320.
Need Help Buying an Investment Property?
If you require funding to help purchase your commercial investment, you’ve come to the right place. Get in touch with any queries you may have.
Article By Ben Lloyd
June 13th, 2017
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben