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Buying a rental property in Preston? Here’s how a BTL mortgage works

A widespread reduction in mortgage rates, has given the buy-to-let market in Preston a shot in the arm following the introduction of a 3% stamp duty surcharge on second homes a few years back. When interest rates are low, buy-to-let mortgage lending rises as investors look for better returns than are on offer from savings accounts. However, UK-based investors looking for a BTL property in Preston need to consider five key factors before applying to take out a landlord mortgage. 1. Loan to value ratio A lender’s LTV determines how much an investor can borrow in relation to a property’s worth. While BTL lenders offer maximum LTV ratios of 75% or higher, the best rates are reserved for investors taking out a loan with an LTV ratio of 65% or lower. This means that if an investor wanted to purchase a two-bedroom maisonette in Preston, for £150,000, a lender would only offer their most competitive rates on a £82,500 BTL mortgage. A further consideration when it comes to LTV ratio is the size of the home loan. Many BTL mortgage providers reduce the LTV ratio to 50% if the mortgage value is £1.5m or over. 2. Interest coverage ratio requirements To make sure an investor can afford to keep up the repayments on a buy-to-let mortgage, lenders look at the relationship between the rental income a property generates and the cost of the loan. This follows Chancellor George Osborne unveiling a tax change in 2015 has removed landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax. In effect, this means landlords will be taxed on their turnover rather than their profit and has led mortgage providers to increase their BTL interest coverage ratio from 125% to 140%. If the interest charged on a £82,500 landlord mortgage is £410 per calendar month, the property in Preston would need to generate a rental income of at least £574 each month to meet the 140% interest coverage ratio requirement. 3. Non-property related income In addition to the income a property investment can generate, many BTL mortgage lenders require investors to be able to prove they have a minimum pre-tax income of at least £30,000 per year for a single applicant or £50,000 per year for joint applicants. This condition, in addition to other affordability criteria, is most commonly applied to first-time landlords. For would-be landlords whose income comes from self-employment, lenders will usually require a minimum trading period of at least 12 months. 4. Primary property ownership status A growing number of BTL mortgage providers require first-time property investors to be homeowners, and to have paid their mortgage without any problems for at least 12 months. 5. Your age With a growing number of investors aged 55 or over using their net income from BTL property to fund their retirement, landlord mortgage providers are increasing the upper age limit for borrowers at the end of the loan period to a maximum of 85 years, while loan terms are also rising to up to 40 years. 7 Every BTL mortgage provider attaches different terms and conditions to their property loans and the information above is intended to act only as a guide to the factors to consider when seeking finance to fund an investment property purchase. Click On the Link Just Another Day In The Office For Jemma All the best, Jemma Jones | Sales & Lettings Director 01772254572

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