FISCUS MORTGAGES - INFORMATION AND ADVICE

What type of Buy-to-Let Property?

Most mortgage lenders prefer to lend on properties worth in excess of £40,000. Additionally, many lenders offer their best deals on higher value mortgages. Accordingly, you need to strike a balance between value of property for mortgage purposes and the rental yield that can be attained. Look for properties with low maintenance costs and in an area with high demand for both rented and owner occupied properties. Your local newspaper on the main property day will be a good source of information. See the advertisements from the estate agents and also look at what the property managers are advertising. Many property managers will advertise to attract landlords with a certain type of property. This provides an indication of the types of property with the highest demand.

Please note that many lenders choose not to lend on ex-local authority properties or flats above shops. Such properties can be mortgaged. However, as the competition between lenders that choose to lend on these types of property is low, they do not have to be quite so competitive.

HOUSES

The best returns come from shared houses, for example lettings to students. However, be prepared for extra maintenance and management problems if you choose to let on this basis.

You may also wish to consider letting to a company or housing association. However, you will need a different type of tenancy agreement for this sort of letting and this could impede your borrowing ability. We are happy to put you in touch with an adviser that can provide you with specialist information about this if required – simply complete our brief enquiry form and make a point of this in the “comments section”.

FLATS

The highest demand for lettings is usually for flats within walking distance of a city centre or railway station. Remember to budget for ground rent and service charges as these can have a significant effect on your cash flow. Before committing to the purchase of a flat, check with the freeholder that permission to let will be granted.

BLOCKS OF FLATS

A small block of flats can be an ideal investment due to re-sale potential. Various options may be open to you when you decide to sell, including disposal of the whole block or the creation of leaseholds so that the flats can be sold separately. This means that the property can be sold either to owner occupiers or to another investor.

Another advantage of purchasing the whole freehold of a block of flats is control of the property in respect of ground rents and maintenance charges. You can also expect higher yields.

The main downside is that many (but not all) buy-to-let lenders shy away from lending on whole blocks of property.

HMOs - HOUSES IN MULTIPLE OCCUPATION

Here lies the trade off between capital growth and cheap mortgages against high yield and strong cash flow. HMOs will usually include flats and bed-sits, often with some shared facilities. Rents are higher as they are usually charged per person and are often DSS funded.

Unfortunately, many lenders shy away from this type of property as they wish to disassociate themselves from what is normally the bottom end of the market. Additionally, re-sales can be slow and cumbersome as the only purchasers are other investors.

Lenders who do lend on this type of property often charge a premium on their lending or adopt very tight valuation policies. For example, they might value the property as if it were a private dwelling house and then deduct the cost to convert it back into a house.

HMOs can, however, be a good type of property to purchase if you need to generate an income and you are prepared to put in the work associated with regular tenant changeovers and refurbishment.