The million-dollar question for all landlords is, ‘How do I make my buy-to-let investment more profitable?’
For all of the necessary fees landlords must pay, from letting agents to addressing repairs, keeping costs at a minimum can be tough. This is not made easier by void periods or accidental damage. Arguably though, the biggest cost to a landlord is the mortgage.
Many landlords forget about mortgages once they have secured an opening deal. This has provoked a warning from the director at a leading estate agency Douglas and Gordon. ‘Don’t get comfortable,’ says Ed Mead, ‘I like to know what I’m doing for five years, but it doesn’t do any harm to check annually. Always use a broker. A broker will know more than you, or the internet, will’.
2013 is predicted to be a busy year for the buy-to-let industry. According to a survey from the Association of Residential Letting Agents, (ARLA) the average portfolio of buy-to-let investors rose from seven to eight in 2012.
Existing mortgage lenders are already taking steps to entice new and existing landlords. BM solutions have announced plans to increase buy-to-let lending rates from 17 to 21% of its annual lending.
On the whole, it appears that landlords are starting to become more savvy about refinancing their property. A survey from brokers Mortgages for Business suggested around eight in ten landlords want to remortgage in 2013, as opposed to five in ten last year.
How to make your BTL investment more profitable
Find a rate that suits you
Kate Faulkner, director of independent advice service Designs on Property, said that the right mortgage may not be the cheapest. She said, ‘Finding a best rate is essential, but this might not be the cheapest; it might just be the one that is right for your investment objectives.’
She went on to say that, ‘If your aim is for capital growth, get a mortgage that offers a higher loan-to-value so your property covers its costs but won’t necessarily provide much income beyond that. If you want to create income, you need a low mortgage rate to boost your income.’
On average, buy-to-let mortgages are around 1.5% higher than a traditional homeowner rate. Monthly yields typically range from 3-10%, with London landlords yielding an average of 5%. If a landlord becomes too-greatly mortgaged, then they are unlikely to be left with a significant monthly income.
The way forward for some landlords may be to take out a mortgage through a building society. Recently, building societies have become decidedly competitive, providing lower rates and flat arrangement fees. Andrew Montlake of brokers Coreco, explains that, ‘The key is the arrangement fee, which can be as high as 3 per cent – but lenders such as Abbey and Godiva, part of Coventry Building Society, are starting to offer £999.’
Landlords should be advised however that different mortgage lenders will vary on how many properties that can cover. For example, Woolwich and Aldermore permit up to ten properties, whereas Lloyds allows only three. Also of note is the fact that for those looking to remortgage on a regular basis, by-to-let policies without penalties for redemption are few and far between.
Other things for landlords to take into account when seeking mortgage providers are that certain properties can be refused finance. These include ex-council houses, flats with in excess of five floors and flats above shops. Buy-to-let investors may also be required to provide a 25% deposit to remortgage.
Faulkner believes that by asking themselves the correct questions, they will be in a much stronger position to chose the correct mortgage policy and provider; -, ‘What if rents fell by 5 or 10 per cent? What if property prices fell by the same amount – could you still remortgage? And if the property is empty for months, could you cover the costs of mortgage, service charges and ground rent?’
Choosing the correct mortgage policy and provider could be the key to sustaining a profitable return on a buy-to-let investment.