Getting a buy to let mortgage
We have a final piece of research in our buy to let property jigsaw puzzle. That is to find out about a buy to let mortgage.
A quick internet search showed that many high street lenders offer buy to let mortgages. We also found out that our mortgage broker can help with buy to let mortgages.
Borrowing direct or via a broker
There are some banks which offer buy to let mortgage products directly to borrowers. Some banks only offer buy to let mortgages via brokers. This means that the whole of the market is not available to view and compare online.
This is completely different to the ordinary mortgage market. When we bought our house, most products, or at least indicative rate, were available to see through comparison sites.
Buy to let mortgages have very different criteria to the residential mortgages that we are used to looking at. The minimum income level required is £25,000 for an individual. And for a limited company the minimum income level is also £25,000 pounds.
The company directors will need to provide a guarantee if the company can’t prove an income. This guarantee says that the director will personally pay the mortgage if the company doesn’t. It is important to realize that if a company doesn’t have 3 years of accounts for the bank to look at, they will ask for a guarantee.
Since we are both directors of our company, and it is so new that it doesn’t have accounts. We’ll both have to give a director’s guarantee. We can both prove that our personal income is over £25,000. So hopefully banks will be comfortable lending to our company.
Loan to value ratios
The ratio of loan to value is different with a buy to let mortgage. It is very unusual for buy to let mortgages to be offered for less than 75% of the purchase price. The limited company, or the individual buyer, must be able to pay the 25% deposit that this requires.
In some cases, the ratio changes to 80% mortgage and 20% deposit. This happens if a lender is confident that a buyer has a history of being a buy to let landlord.
This is very different to residential mortgages where mortgages of 90% are available. In effect, buyers need to have available 10% deposit plus money for the fees and associated costs.
What does this mean for us?
In view of this, we are going to have to look at the money in our savings. What’s more, we need to be really clear about how we are going to be able to afford a purchase. In other words, the money has to stretch to a 25% deposit and cover stamp duty, fees and other costs.
I suspect that we are going to have to enhance and extend our opportunity model. This will ensure that we have enough cash in the bank to make the purchase that we want to make.
In conclusion, with the right broker and evidence, plus enough money, our limited company should get a mortgage.