If a property is valued at £150,000 and you have a 25% deposit, then the loan-to-value ratio is 75 per cent.

When buying a property as a home, loan-to-value ratios can be as high as 95% , so only a 5% deposit is required. 

When investing in a property, buy-to-let mortgages are likely to require a higher level of deposit of 15-25%. 

Typically, the higher the deposit, the greater the number of mortgage products there will be to choose from - and the interest rates may also be lower. 

Mortgage interest rates 

This is the amount of interest you pay on the mortgage you take out to buy an investment property.

Rates vary from time to time, depending on the level at which the Bank of England sets their bank rate.

Historically, the lower the Bank of England bank rate, the lower the mortgage interest rate. 

Rates can also vary according to how much lenders want the business. The more interested the lender is in attracting borrowing for investing in residential property, the more competitively they tend to set their rates. 

When committing to a mortgage, there are costs involved, from booking to administration fees and valuation costs.

It is worth considering these in a ‘costs versus value’ manner, rather than simply choosing a mortgage with the lowest rate.

Depending on your investment strategy, it may be worth paying higher fees for a mortgage product that best meets your requirements. 

One of the key criteria lenders consider before making a mortgage offer is whether the investment property is viable from a lettings perspective. One way to do this is to calculate whether the monthly rental income is significantly higher than the cost of the mortgage repayment.

 

Although percentages can vary, lenders look for the monthly rental income to be approximately 125% -145% of the mortgage repayment amount (based on a different set of  interest rate stress tests based on the applicant type, please contact us for a personal quotation), which they will want verified by a qualified surveyor.

Maintenance and other ongoing costs also need to be paid for, so check whether any property you consider buying will generate at least enough excess rental income to cover current and future repairs as well as the mortgage costs.  

When investing in property, there are different ways to earn rental income, depending how the property is let and to what type of tenant, and this may influence the mortgage you borrow.

For example, there are some lenders who will lend on high-rise flats, while others do not; some investors want to let a whole property, while others will want to rent rooms individually. For some investors, a mortgage may initially be required to renovate a property, before letting it long term.  

Each of these scenarios will have different implications for capital investment, rental income and on-going costs, and the type of investment you make can determine which mortgage lender and product is available to you and most suited to those specific circumstances.

When choosing a mortgage for property investment, it is about much more than simply comparing the interest rate. Some lenders may even limit the number of Buy-to-Let mortgages they will provide to one person.

If you are only planning to invest in one property to let, this may not be a consideration, but if you plan to build or already invest in a large portfolio, particular lenders may be more suitable. 

If a property you are interested in buying is already being let out, check how much rent the tenant is currently paying, but don’t assume that this is the maximum you could achieve.

Many landlords do not increase rents each year for existing tenants, particularly if the tenant has been in the property for several years. 

 Local letting agent websites or property portals such as www.rightmove.co.uk or www.zoopla.co.uk will advertise properties for rent similar to the one you are looking to buy, so look at these to get a better idea of what you could achieve on the open market.

A good tip when searching online is to check the ‘Let Agreed’ box, to see properties that have actually let, as that is a good indication that the advertised rent level is fair.

Bear in mind that anyone can set up as a letting agent - they don’t have to have any qualifications or experience, only to join a Property Ombudsman scheme – so look for self-regulated agents who are members of NALS, ARLA, or are RICS-registered, so you can be confident their valuations are reliable. 

Step Two - Use our service to determine how much your mortgage payments will be.

Once you know the monthly rent levels and the cost of the repayment, you can calculate whether the property is mathematically OK for investment; please note that it will be the lenders rental valuation that the size of loan will be based on, even if you could charge a higher figure.

When you own a property and let it out, you are essentially running a business. As such, there are certain costs that are tax deductible.

Because of this, most landlords who want to maximise both their rental income and the return on their property investment, take into account any tax benefits and tend to invest with some level of mortgage over the long term.

With an interest-only mortgage, a landlord would keep more of the monthly income but never pay off the loan; with a repayment mortgage the landlord owns the property outright at the end of the mortgage term. 

For those who are investing to generate an income, the interest-only option may be best.

If it is capital growth and a lump sum that are required, or you want to pass on a fully-owned asset to your beneficiaries, a repayment mortgage may prove to be a better choice. 

One of the highest costs of investing in a property to let is the mortgage.

To maximise rental profit, it is worth regularly reviewing whether your existing mortgage is offering the most competitive deal for your circumstances. 

 

In addition to regular reviews, there are certain times when it is advisable to check the rate you are paying versus what is on the market. This may mean considering switching mortgage products and to a new lender, or renegotiating a deal with the existing lender.

A key time to review mortgages is when the Bank of England changes the bank rate, as this can trigger lenders to review their mortgage interest rates. 

Another time to review mortgage options is when a ‘deal’, such as a fixed or discounted rate, is coming to an end.

We can help to monitor deals that are suitable for your circumstances, taking into account the mortgage interest rate, any penalty payments and other costs associated with switching to a new product or lender.

When working with buy-to-let investors, we find that not all of them plan to invest in property. For some, they became a landlord almost by ‘accident’.  

They may have wanted to buy another home, couldn’t sell their own and decided on a let-to-buy to release equity to buy a new one. Some have inherited a property and decided to let it, while others wanted to buy a property near where they live to secure a home for their children in the future and let it in the meantime. 

Whatever your reason for letting out a property, to be a successful investor, it is helpful to be clear from the start what you want your investment to deliver and within what timeframe. 

- Is it to secure an income to supplement your pension in retirement? 

- Is it to generate a lump sum of cash to spend on something specific? 

- Is it to ensure there is always a property available for your children to live in? 

- When do you need to start realising retirement income?

- Are you going to sell the property and reinvest the capital growth?

- Or do you want to keep letting the property, pay off the mortgage and draw down the future rental income in retirement? 

Once you have clarified your reasons for investing, consider how much you are able to put on one side for that length of time. Most people who invest in a property to let will hold the investment for a period of 15-20 years, so how much could you afford to invest for that period of time?

When considering how long you hold the property for, bear in mind, property is not an asset you can cash in quickly. It can take three to six months, or longer, to sell the property to recoup the investment you made.

While we have a market where property prices can rise and fall, it is important to only have to sell when you want to, rather than a time when the property market is slow and falling in value.  

Property investment offers a great opportunity to make money, but this rarely happens by accident. Buy-to-let properties need to be well-managed on an ongoing basis to continue to deliver good returns. 

During the credit crunch, landlord repossessions rose to their highest level mainly because investors weren’t able to keep up with their mortgage payments. This may have been due to tenants not paying the rent or the property not being in a good enough condition to let, leaving it for months rather than days or weeks. Having a property repossessed by a lender can mean losing the deposit and paying out more costs associated with selling the property.

If repossessed and the property is sold for less than you owed to the mortgage company, the lender can recover further debt, having up to six years to pursue those that default. 

Although it is impossible to guarantee a property will always increase in price, if you are able to purchase something at less than its true market value (i.e. less than a surveyor’s valuation), this can create a safety net in case of a fall in market values.

But the most important thing to ensure is that you are able to afford your investment property, not only today but also in the future. That means keeping a close eye on your costs, the biggest of which is likely to be your monthly Buy-to-Let mortgage payment.

We know that rents tend to go up and down, according to supply and demand, but are typically ‘capped’ by wages. That means if wages are stagnant, rents tend to be stable as well, and you may not necessarily be able to pass on any increase in your own costs to your tenant.

You can fix the mortgage so the payments don’t vary, even if rates go up.

Although you would not necessarily be able to benefit from lower payments if rates were to fall, you would have the peace of mind of knowing that your mortgage payments will be the same each month.

This is particularly helpful if you have locked in rent levels for 6 or 12 months under an assured shorthold tenancy agreement.

Ideally, any investment property you buy will increase in value and the rent will always be higher than your costs, leaving enough spare cash to both pay for periodical repairs - such as a new boiler or mending roof damage – and cover immediate costs should your tenant stop paying the rent.

There is also the option to insure your rental income, so even if the tenant doesn’t pay, you can claim on your specialist landlord insurance. There are various different types you can take out; some pay out immediately, as soon as your tenant misses a payment, while others may expect you to fund the costs for a short period of time.

Finally, put money aside just in case there are times when the rent is higher than all your costs. Consider keeping a fund of a few thousand pounds if the property is in very good condition, up to £5,000 if you know the heating system or roof will need work in the next few years.

That way, if a big home improvement bill comes your way, you will be able to cover the costs without risking any mortgage payments. 

• Possible future structural issues 

• Signs of damp

• Electrical and gas safety

• Outbuildings

• Energy Performance Certificate

There is often confusion over surveys, with many people still under the impression that because a lender insists on obtaining a mortgage valuation before they issue a mortgage offer, there is no need to arrange any other survey.

It is not always made clear enough that the valuation a lender requires is to establish that the amount you are paying for the property is a fair price and the loan-to-value being offered by the lender is correct.

When buying a property to let, there are many more things you need to consider, some of which the lender will also be concerned about, but others may not examine quite as closely as you should. 

Here are the key areas property investors should have surveyed or checked prior to exchanging contracts:

During your investment you will need to set aside money on a regular basis to cover periodical large maintenance bills. Most investors plan to hold a property for 15-20 years and a good surveyor should be able to give you an idea of when the roof, chimney, windows, etc. might need repairing or replacing and some will also give you an idea of costs.

Damp, condensation and mould are major causes of complaints from tenants, so ask your surveyor for detailed feedback on any existing or likely problem areas.

If they recommend taking specialist advice, you can normally get a free damp survey from specialists that understand the law regarding rental properties.

In addition to having a RICS surveyor check the fabric of the property, a gas safe engineer and a qualified Part P electrician should be instructed to carry out a survey on your electrical and gas supplies and installations.

You will require a gas safety certificate (which must be updated annually) in order to let the property and, although not currently a legal requirement, it is responsible to have a domestic electrical installation certificate.

If you are buying a property with sitting tenants, the owner should have valid certificates and guarantees.

These can provide valuable extra storage for tenants, so ask your surveyor to check and make sure they are in good condition and safe.

Discovering after purchase that there is asbestos in a garage, for example, can mean an unexpected bill for having it removed professionally.

This will form part of your legal purchase documentation and you need to check the rating.

Under new legislation from 2016, if it is F or below, you may not be able to let the property.

If the property is already rented, tenants can demand improvements, which you will need to pay for. Ideally, the property should have a rating of D or above, which is the UK average. If it is below that, you may be able to negotiate money off the purchase price and should certainly ask your surveyor to advise which areas might need work in order to improve energy efficiency.

Carry these out before you purchase...

It is sensible to have these surveys carried out before you complete your purchase, as it is often impossible to tell whether there are problems simply by looking.

Issues with electrics, gas and damp can cost thousands of pounds and take time to fix, so it is better to negotiate these costs off the property’s price