here are the top 5 deadly mistakes that investors can make when sourcing a buy to let mortgage.
you should base your infographic on these 5 mistakes.
1. Don't "rate chase" - get proper mortgage advice
Spending hours on the internet used to be the way to find a good
mortgage rate – not anymore.
Too many investors make the ‘school boy’ error of chasing the
perceived ‘best’ rates without properly considering all elements of a
mortgage deal in–tandem with their own aspirations and resources, and can end
up with a costly and unsuitable loan that could hold them back for
years. Rate chasing used to be easy. You’d just jump on the internet
and look at any number of websites that give you 24 hour real-time
access to live mortgage deal information; which was great. Nowadays
the lenders criteria can be so detailed you later discover you’re not
eligible for that fantastic rate you found on the internet. You’re
wasting your time. Get proper advice!
2. Don’t go direct to your bank
Get whole of market mortgage advice.
Inexperienced investors are at the mercy of the banks. Yes there are
some great products available via your bank but you need to check the
whole of the market. That means go to a mortgage broker that can
search the whole mortgage market for you. That includes almost all
Lenders, not just your bank. There are hundreds of products out there
and a few minor differences in the product can make a huge difference
to your bottom-line. The subject is so complex even specialist buy to
let mortgage brokers need powerful and expensive software to help them
find you the best deal.
3. Don’t underestimate your tax liabilities
Get clever – get tax advice.
One of the huge benefits of investing in buy to let property is that
mortgage interest payments are deductible against tax. This means each
mortgage payment in any given tax year can be deducted before you
calculate your tax liability. If a property is purchased without a
mortgage or with a small one, all or the majority of income (after
management fees etc) will be applicable to income tax. So the greater
the mortgage payment on a buy to let property, the smaller the tax
bill. Brilliant! In certain circumstances rental income can have the
negative effect of pushing people into the higher tax bracket, but
offsetting mortgage payments against tax could push a tax payer below
the higher rate tax band. By using bank borrowing and creating a
smaller income from your investments, you will still gain capital
growth but won't be paying unnecessary income tax!
4. Don’t forget the power of gearing.
Use other peoples money and other peoples time to make it big in Buy to Let!
Many inexperienced investors getting into buy to let investments don't
appreciate the benefits of leverage (using the banks money to purchase
property and make your own money go further). For example, if you had
£80,000 cash you may look to purchase one buy to let property for
£120,000, and put all the initial £80,000 down as a deposit. If the
property doubled in value, you make £120,000! The benefit in this
example would appear to be that you only needed a £40,000 mortgage.
This also keeps your monthly mortgage payments down. Bonus! But
actually you could have, in effect, purchased £240,000 of investment
property by using the £80,000 as a deposit. So when house prices do go
up, you get to take advantage of the gearing and potentially bank a
whopping £240,000 profit if the value was to double. And don’t forget,
whatever the mortgage, the rent should cover it anyway.
5. Don’t use a broker just because s/he’s your friend
Buy to Let finance is now a highly specialist area, so get a Buy To
Let specialist mortgage broker on the case.
In recent years the mortgage market has changed and in particular Buy
to Let investments have become a highly specialist area of mortgage
lending. Mortgage Lenders recognise that the Buy to Let space is
growing fast and have designed and released unique mortgage products
to help the dedicated Buy to Let investor. But the products themselves
have some incredibly detailed criteria attached which requires
intimate working knowledge to ensure you get the right deal for you.
01522 503 710