Mike Pendergast is an IFA at Zen Financial
“A lot of lenders will lend on a buy-to-let mortgage using rental income rather than earned income – some will do both, depending on what suits the client. Craig can borrow up to 90 per cent of the purchase price or valuation on a buy-to-let mortgage. Assuming the property is, say, £170,000, he could borrow up to £153,000, with a £17,000 deposit.
The interest rate and lender recommended would depend on the projected rental income from the property. Craig would probably be best renting it out to three separate students rather than as a whole property, as this way he will probably earn more through rental income – although there would be additional administration involved and the risk of one of the students defaulting on rental payments. A good agent would be able to manage this for him to reduce admin on his part. A lot of buy-to-let investors also decide to borrow on an interest only basis to reduce their ongoing costs.”
Nicola Severn is communications manager at the Paragon Group
“Craig has a substantial sum to invest and a good option might be to invest half of his capital, retaining the remainder should he decide to expand his portfolio later.
With a £24,000 investment, Craig could borrow around £136,000 on a £160,000 property. He could benefit from using the MT Select two-year Base Rate tracker, priced at 5.24 per cent.
To obtain a loan of £136,000, Craig would need a monthly rental income of around £724. If he targets the university market he would need to charge three student tenants a minimum of £62 each per week. Craig could also convert the downstairs living area into a fourth bedroom. Although this would reduce the amount of rent he could demand from each student, £50 per week per tenant would give him a total monthly rental income of £800. As there would be less than five tenants sharing the property, it would not fall under mandatory houses in multiple occupation (HMO) laws.”
Michael Brill is director at Baronworth Investment Services
“Some lenders will not allow lets to students, and stipulate that the property is only let to single family units. In addition, some lenders will not allow first-time buyers to take out buy-to-let mortgages.
As every lender has different criteria and charges, I would strongly advise Craig to contact an IFA.
Should Craig decide to use £40,000 as his deposit, he could obtain a £130,000 interest only deal at 4.93 per cent from West Brom, tracking 0.07 per cent below Bank Base Rate for two years from completion. This product is available for mortgages up to 85 per cent of the purchase price. He could let to students, on condition that they are all on one assured shorthold tenancy agreement.
A £170,000 purchase would incur stamp duty of 3 per cent of the purchase price (£5,100) and solicitors fees of around £400.
Some buy to let rates incur large arrangement fees, and with the above scenario, the fee would be £2,600 although this can be added to the mortgage, this would make the monthly mortgage payments £544.76. He would also need to pay a valuation fee of £300.
Some buy-to-let rates incur large arrangement fees. There are products with lower fees, but the rates are much higher, and taking this into account, it is prudent to pay the higher arrangement fee in order to obtain the lower interest rate.”
