When it comes to making the most of an investment property, finding the right home in the right location is only half the battle; finding the best finance is other half. Many options are available and the choice of mortgage will ultimately depend on your particular investment strategy and the type of property.
1. Standard variable rate or fixed rate mortgage
Depending on your circumstances, most lenders will let you borrow up to 95 per cent of the purchase price of an investment property.
2. Equity home loan
If you already own or substantially own your home, you can borrow against the “equity’ your have accumulated. Equity is simply the difference between what your property is worth and what you owe. For example, if you have £200,000 to pay off on a home worth £500,000, you have £300,000 worth of equity. An equity home loan gives you a line of credit on your mortgage up to an approved amount. The loan can be taken in full or in stages, making it particularly useful for property investing.
Buy To Let Offers Greatest Returns
The return offered on buy-to-let property easily outstripped those from shares, cash or bonds, according to research from lender Landbay.
For every £1,000 individuals invested in buy-to-let property in 1996, when the scheme first appeared, individuals saw a return of more than 1,400 per cent at the start of this year. That equates to every £1,000 turning into an incredible £14,897 over the last 19 years.
The compound annual return works out at an impressive 16.2 per cent. That`s way above those seen from other assets and will surely drive further investment in property in the future.
Thousands of over-55s are now enjoying new-found pensions freedoms, which they could use to set themselves up as amateur landlords via buy-to-let. It would allow them to profit both from the rental income paid by tenants and the capital growth from rising property prices.
However, before these budding landlords withdraw all their pension pot, would-be investors should evaluate the costs of owning buy-to-let properties.
Stamp duty on the purchase, servicing the mortgage, repairs and maintenance, household insurance, and allowing for void periods between tenants, are all costs associated with being a landlord.
Furthermore, most will be liable to pay income tax on rental income and capital gains tax if they sell the property.
Being a landlord requires a lot more effort than most expect, according to Simon Tyler of Tyler Mortgage Management, especially if you choose to self-manage your property.
He says landlords `have to be very hands-on, doing maintenance and repairs yourself or chasing late rents`.
Despite this, when managed correctly, buy-to-let investments delivered stable returns over the last 18 years. It`s no surprise then that around 1.6 million Britons have set themselves up as amateur landlords since 1996.
The research from Landbay will add to recent data illustrating that lending to landlords is on the up.
Last month saw the release of figures from the Council of Mortgage Lenders (CML), which showed the number of loans issued to landlord soared by 26 per cent in the final quarter of 2014. In value terms, that was a 32 per cent increase to £7.7 billion, when compared with the same quarter of 2013.
Overall, the CML report highlighted that the total number and value of loans recovered to levels not seen since 2007, before the financial crisis.
Homeowner Secured Loans
Rates From 7.1% APRC
Representative Example £30,000 over 72 months @ £679.90 repayments. Total payable of £49,949. 20.1% APRC including £2,975 intermediary fee and a £995 lender fee. Loans secured on property.
First Choice are tied to certain loan providers.
Mortgages & Remortgages
Borrow £80,000 over 25 years
At 4.6% Variable, £461.95 for
300 months. Total Payable
£138,585. Total Cost Of
Credit £58,585 (incl £1360 fee).
Unsecured Personal Loans REPRESENTATIVE 49.9% APR (VARIABLE)
First Choice are tied to certain unsecured lenders.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Security is required on
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