Nicola Severn is head of PR at edeus
“There has been much publicity surrounding the expected increase in rental demand and, for the investor who purchases the right property in the right location, there could be significant advantages. However, rates have risen across the board and Vivien needs to be sure that rental income she is able to receive adequately covers her monthly mortgage costs.
Based on an interest rate of 6.50 per cent and a rental income requirement of 110 per cent, she will need to achieve a rental coverage of around £660 per calendar month. This isn’t unachievable, but the success of this investment will rely heavily on the location of the property and the rental demand in that area.
With a required loan-to-value (LTV) of approximately 72 per cent, Vivien’s adviser shouldn’t have any problem sourcing a variety of products but should look for a lender who can turn the application around quickly. Technology focused providers are able to issue offers within a matter of days.”
Danny Lovey is from The Mortgage Practitioner
“Assuming that Vivien works, has the minimum required income, and the rental value for this apartment is around £650-£675, she could secure the property on 73 per cent LTV.
Birmingham Midshires currently has some competitive deals in the market at a 125 per cent pay rate on the product, irrespective of it being a tracker or fixed rate.
The high arrangement fees make calculations much more complex. However, the 5.35 per cent three-year tracker with 2 per cent arrangement fee costs £500 in monthly interest payments, or £561 in real costs amortised over the three years.
The March 2010 fixed rate is also competitive at 5.89 per cent with a 1 per cent fee giving a monthly cost of £545 or £585 taking into account the real cost, amortising over 27 months. Rental is a bit tight, but at worse the 110 per cent pay rate product would cost another £22 a month.”
Thomas Reeh is chief executive of blackandwhite.co.uk
“There are numerous buy-to-let options available to Vivien, as she is borrowing less than 75 per cent of the value of the property. She needs to look carefully at lenders’ affordability calculations, because, as rates have risen, it’s not always possible to achieve rental income to cover borrowing, so the application could fail on this basis.
As Vivien is borrowing a fairly low LTV, she should look for a no fees mortgage. Most are set up on an interest only basis to maximise tax savings and, with rates looking likely to fall, I’d recommend she looks at a tracker product.
A fees free two-year Woolwich tracker at 5.29 per cent with rental requirements of 105 per cent of the pay rate would mean Vivien only has to achieve a rental of £509. She can also overpay by 10 per cent of the capital each year within the deal period.
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