Buy to Let Mortgages - Simple Guide
Capital Fortune have provided a handy summary to the purchase of a Buy To Let property. The purchase process can be undertaken in a number of stages in England and Wales as described below.
1. Securing a Mortgage in Principle Before the Buy to Let Search
At Capital Fortune we advise that preparation prior to both the search for a Buy to Let property and the search for the right Buy To Let Mortgage is key before anything else. You could spend all year looking for a Buy to Let property but if you cannot secure a mortgage at an affordable rate then the search process has been meaningless.
Prior to commencing the search, have an idea as to your budget for the Buy to Let property. Be clear on your budget and base it not only on the rental income to be received but also (just in case the property is not rented for a period, or you are not paid rent by the tenants that it is affordable for you on your own income in the short term.
The lenders will often require the monthly mortgage payment to be covered by at least 125% rental income. In other words if your monthly mortgage payment would be £400 you would need to be achieving rent of £500 per month.
Use our mortgage repayment calculator which can assist you in calculating how much the mortgage payments will be each month.
Once you have set your budget, you can then speak to a Capital Fortune mortgage adviser who will take you through a fact find process to determine exactly what you’re looking for, how much you can afford and to determine the type of mortgage and type of product best suits your needs.
On conducting the initial fact find the Adviser will be in a position to make an application to an appropriate Buy To Let mortgage lender to obtain a decision in principle. This is a non-binding decision provided by a lender but it provides a good indication that they will accept a full application for a mortgage should you wish to proceed.
On obtaining a decision in principle its then time to search for a Buy to Let property.
2. Planning the Buy to Let property Search
Prior to the search obtain a map and circle the particular areas in which you the property located. Cross out areas which you don’t like. Focus your search and if possible choose specific roads which may be based on the type of Buy to Let property in that road, its proximity to rail or transport links, the local amenities near by, any bars, pubs, restaurants even local schools. All the things tenants will deem important when choosing to rent the property from you.
Once you have focused on the location conduct a local search of Estate Agents in the area. Call the Agents and make an appointment to actually go in and physically see them
3. Meet all the Local Estate Agents
Estate Agents have a number of applicants and it is our belief and experience that those who go into an Estate Agents to physically register their interest have a greater opportunity to be contacted than those who deal with Agents simply via email or over the telphone. The Agent will have a face to the voice and they will remember you.
In addition when seeing the Estate Agent you are well advanced, as you will be taking in with you, specific details on the actual roads you wish to buy in, the type of Buy to Let property you want and importantly in your hand you will have a Decision in Principle approval from a national lender indicating you will in principle be given a mortgage.
Do not underestimate the value in physical attendance, the demonstration of focus and your pre-approved mortgage. Agents are often messed around and you are presenting as a serious potential Buy to Let buyer. You will see that you are prioritised well above other buyers when properties in your chosen areas come onto the market
4. Buy to Let property Found and Making an Offer
On finding the ideal Buy to Let property, always think whether it is actually right not for you, but for potential tenants. Tenants may not necessarily share your choice of location, property type or internal décor for that matter. Look at the whole process as if you are buying for someone else not yourself. If it’s a Buy to let you don’t have to live there, remember that. Think what a prospective tenant would want.
If you feel you’ve found the right property, wait until the following day and if you’re still excited about the purchase, ask for a second view. If you previously viewed it at night ensure you view it in the day. If initially in the day, see the Buy to Let property in darkness. This property will become your investment and it is important you see it in all its guises.
If you still want the property then make an offer. You can do this on the telephone with the Agent, but again sometimes its best to write a formal offer letter to the Agent indicating that you are interested in the Buy to Let property and you would like to make a written offer. Always include, subject to contract as until the legal process is fully undertaken you will not be sure what security will actually transfer with the Buy to Let property.
If the offer is declined think carefully before making another offer, always consider your budget and what rental income will be achieved in comparison to the monthly mortgage payments. Do not exceed what you had initially had in mind. If you do increase your offer again use our mortgage repayment calculator to ensure that the mortgage payments will be sufficiently covered by the rent each month. If so, then you have some leeway to make a further offer.
If the offer is declined, walk away. Never make more than two offers. The decline of both means you are being pushed past your financial comfort zone and given there are well over 30 million homes in the UK, we promise there will be another one out there for you.
5. Offer Agreed and Memorandum of Sale
If the offer is accepted the Estate Agent will let you know and will draw up what is called a Memorandum of Sale. This is an agreement between the parties and contain the details of the Buy to Let property, the agreed sale price, the parties full names, contact details and importantly the parties solicitors.
6. Instruct your Solicitor
It is at this stage you will need to instruct a solicitor who will represent you through the legal conveyancing process. The UK conveyancing solicitor is critical in ensuring you get the full legal title to the Buy to Let property and in other words get you the property you are about to pay for.
You can speak to your Capital Fortune Adviser regarding our national panel of conveyancing solicitors or you can obtain your own quote online from hundreds of solicitors nationally.
Once the solicitor has been chosen, inform us that your offer has been agreed and we will commence the full Buy to Let mortgage application. Prior to doing so, we will confirm that your initial needs and requirements have not changed and if not we will undertake an up to date comprehensive panel search to ensure that the mortgage product chosen for the decision in principle application still remains the best value mortgage for you.
7. Full Mortgage Application Submitted and Underwritten
We will place you on the most suitable and affordable Buy to Let product available on the day of application.
Once the application form has been submitted with all proofs of identification, address and rental income confirmations, the mortgage loan will be fully underwritten.
If the underwriters require further documentation or clarification of any issues raised in the application, they will contact us and we will liaise with the underwriters on your behalf.
8. Choosing the Valuation
Once the case has been underwritten it will be agreed subject to valuation. You will have the choice of which valuation to choose from and the guide below will be helpful in deciding this for you.
Valuation for Mortgage Purposes
Before a lender will offer you a mortgage they will require a suitably qualified valuer to inspect the property and submit a written report confirming that the property is a suitable security for the loan you have requested. This report does not necessarily give you any indication as to the condition of the property and in some cases you may not be permitted to see a copy as it is purely for the lenders purposes. If the property is new and building works are not completed, you may have to also pay for a second report to be obtained when the property has been finally completed.
This is more detailed than the basic valuation, but limited in focus and there is little comeback in the event of serious problems encountered later. This report could however, identify some defects giving you the opportunity to obtain more specialised reports and estimates. It is highly recommended that a homebuyers report be arranged in conjunction with the lender to prevent duplication of valuation costs.
Full Structural Survey
This is a thorough and complete inspection of the property carried out by a qualified professional surveyor. It can be expensive, but worthwhile given that your home is the most costly item you will probably ever purchase. It is highly recommended that this be undertaken in conjunction with the lender to prevent duplicate valuation costs.
9. Mortgage Offer
Once the valuation is back from the surveyors the underwriters will again look at the case and determine that the Buy to Let property is in fact good security at the price you have offered and importantly that you will secure sufficient rental income to cover the mortgage. If they agree with you, they will issue a formal mortgage offer. If they feel you are overpaying or feel that the property has some issues which may need repairing they can either reduce the loan they ware willing to lend or can offer what is called a conditional offer. A conditional offer is one whereby the mortgage lender will retain a part of the loan and will make payment of that part once any suggested works have been undertaken. This is called a retention.
10. Solicitors to Exchange and Complete
Once the mortgage offer has been issued it is then down to your solicitors to set a date for exchange and completion. Exchange and completion can take place on the same day but there is usually a period of time between the two dates.
Prior to exchange of the contract your solicitor will have undertaken all necessary searches on the Buy to Let property to ensure it is free from legal encumbrances and that you will on completion obtain good title to the property.
You mortgage lender will also insist that your solicitor reports to them on the title prior to drawdown of any mortgage funds.
Once the searches are complete, the actual sale contract is drawn up and sent for signature to both the buyers and the sellers.
Once the signatures are on the agreement it then becomes a legally binding document and the seller then has the right to enforce the contract should you wish to change your mind.
Your solicitor will go through all the legal implications of failure to complete prior to you signing the exchange documents. This is the final stage in which you can pull out of the sale if you have had a change of heart. Hopefully, you’ve only got to this stage because you want the property.
Within the sale contract, a date would have been set for completion. Prior to the date of completion you would have arranged to transfer your deposit to your solicitors account and the solicitor would have requested the lender for the mortgage advance funds. The combination of both the deposit and the mortgage advance equating to the price you are paying for the Buy to Let property.
On the day of completion your solicitor will be responsible for sending the total monies of purchase to the sellers solicitors.
On doing so, your Buy to Let property transaction has completed.
You can then arrange with the Estate agents to pick up the keys and you can start the search for your tenants. Check out our Buy to Let FAQ for further information
12. Post Completion
Your solicitor after completion will register your ownership of your new Buy to Let property with the Land Registry and you sale will be fully completed and fully registered.