What are mortgage requirements for investment property? What are buy to let lender options? Commercial property investments have been very stable and hold sustained growth in industrial and retail sectors, and are considered to be safe investment. If you decide on a commercial investment property you need to assess carefully the availability of premises in the local area. Let’s 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. So mortgage requirements for investment property are that the most lenders used to base their assessments on:
Applicants credit score
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 typically has a higher access point, and has seen lower returns in the past 20 years than residential BTL investments.