Are you a buy-to-let landlord in London, or are you considering entering the market? If so, you’re probably keeping a watchful eye on the ever-changing buy-to-let interest rates and their impact on your investments.
We had a chat with Eric Miller, Mortgage Advisor, and Jamie Lewis, Managing Director at the Affinity Group, to uncover the ins and outs of how interest rates can affect landlords like you.
Calculating buy-to-let borrowing potential: the 125% Rule
One of the key ways interest rates impact landlords is through the calculation of borrowing potential. Most lenders assessing the amount they’re willing to lend want to ensure that the rental income covers at least 125% of the mortgage payments. This cushion helps safeguard against potential market fluctuations. Moreover, lenders often consider slightly higher mortgage rates than the actual pay rate of the mortgage scheme.
So, what does this mean for your mortgage deal? Well, if interest rates increase, the overall cost of your mortgage repayments could rise. This could potentially lead to a situation where your current rental income no longer meets the lender’s coverage requirements. Then you might need to consider raising the rent to ensure your investment remains financially viable or be prepared for a lower borrowing amount.
Is being a buy-to-let landlord worth it?
The answer to whether it’s worth being a buy-to-let UK landlord is a nuanced one. Jamie Lewis advises that regardless of interest rates, the decision should be based on affordability and risk appetite. While interest rates undoubtedly play a role, it’s crucial to have a solid investment plan in place. This includes being comfortable with potential shortfalls in rent as well as unexpected maintenance costs. Interestingly, with the current fluctuations in house prices, this could actually be an opportune moment to make an investment, Eric Miller points out.
When house prices fall, rental yields tend to increase. So if the right property comes along at the right price, this might just be the perfect time to dive into the buy-to-let market.
Interest rates and the ripple effect on rents
As interest rates influence borrowing potential, they also have a direct impact on the rental market. When interest rates increase, landlords may find themselves in a situation where they need to increase rents to meet the lender’s affordability criteria.
If existing rents aren’t sufficient to cover the proposed mortgage costs, securing a new deal could become a challenge.
Can you live in your buy-to-let property?
Have you ever wondered whether you can live in your buy-to-let property? Jamie Lewis clears the air on this matter. Generally, you are not permitted to live in your buy-to-let property.
However, some specialized mortgage products, like holiday or short-term let mortgages, might allow you limited personal usage. If you’re considering such an arrangement, it’s crucial to communicate directly with your lender to seek permission and make sure you don’t violate the terms.
Choosing the right mortgage for your property
Navigating the world of mortgages can be daunting, but Jamie Lewis offers valuable insights. If you’re planning to rent your property on an Assured Shorthold Tenancy (AST), you’ll need a buy-to-let mortgage. However, various other mortgage products cater to different rental scenarios, such as long-term leases, holiday lets, serviced accommodations, commercial premises, and supported living.
To ensure you’re making the right choice, getting guidance from an experienced mortgage broker is highly recommended. They can provide tailored advice based on your specific situation and needs.
No income, no problem?
The question of income often looms large for potential landlords. Jamie Lewis acknowledges that several lenders have no strict minimum income requirement for buy-to-let mortgages. Nonetheless, mortgage brokers always prioritise the plausibility of the mortgage for the client. While income might not be the only criterion, there are likely other factors you’ll need to satisfy to explore your borrowing options.
Fixed or variable rate: the end of your fixed term
When your fixed-rate mortgage term is nearing its end, the question of whether to opt for a fixed or variable rate arises. Jamie Lewis advises that this decision should be made in consultation with your broker.
Your choice between fixed or variable interest rates will depend on your risk appetite and your future plans for the property. It’s worth considering that opting for a longer fixed-term product might increase the available loan size, providing you with more financial flexibility.
How Letio can help
At Letio, we’re on a mission to make renting better – for everyone. We believe that doing good is good business. Sustainability, transparency and accountability are at the heart of everything we do, as we support landlords like yourself on every step of the letting journey.
Where to buy buy-to-let property in London?
There are great Buy-to-Let opportunities in every part of London. Here are seven examples of promising areas:
- Greenwich: Blend of history and modernity, excellent transport links, and diverse housing options.
- Stratford: Post-Olympics vibrancy, shopping, and great transport connections.
- Croydon: Suburban feel, regeneration projects, and a range of property types.
- Barking: Emerging with Crossrail’s arrival, affordability, and ongoing redevelopment.
- Lewisham: Affordable, well-connected, and set for regeneration benefits.
- Woolwich: Riverside appeal, transportation improvements, and ongoing regeneration.
- Walthamstow: Creative atmosphere, good transport links, and diverse amenities.
Thorough research, expert advice, and evaluation of rental potential, property value growth and Buy-to-let interest rates are key to a successful buy-to-let investment in London.
How much deposit is needed for buy-to-let in London?
The deposit required for a Buy-to-Let property in London typically ranges from 25% of the property’s value. This percentage varies based on factors such as the lender’s criteria, the applicant’s financial profile, and the property’s location.