Great Mortgage Advice - Q and A with a Mortgage Advisor - Lets Manage North East

31st May 2016 No Comments

Great Mortgage Advice – Q and A with a Mortgage Advisor

Posted by Susan Edwards in Financial Planning

Steven-Mullins-Financially-SoundSteve Mullins, Financial Advisor at Financially Sound offers an insight into strategies for organising your mortgages to create the best return on investment.

Steve is an experienced Independent Financial Advisor with over 30 years experience in the world of finance and specialises in mortgages.  I have personally used Steve and he managed to reduce my mortgage by £220 a month. I naively thought I was financially savvy but obviously not compared to Steve.  I thought it would be useful to speak to  Steve about what the best strategies are to ensure your property portfolio makes you money to fund the lifestyle you desire.

  • In the South East Northumberland area, what is the typical size  of  mortgage for rental properties?

It’s £40,000 to £60,000 mortgage, depending on how many bedrooms in the property with a minimum of £10,000 deposit.

  • What is the ideal amount that a landlord should invest in a property?

£50,000 for a 2 bedroom property and £70,000 for a 3 bedroom property. Purchasing at these prices will provide a good rental yield.

  • How much should landlord’s generally put down as a deposit?  

The deposit is generally 25% of the purchase price, but the more deposit that is paid the lower the mortgage costs.

  • What are the reasons for choosing an interest-only mortgage over a repayment mortgage for an investment property?

An interest-only mortgage gives the landlord a lower monthly mortgage payment which increases the gross profit on the investment property, it also means if there are any rental voids, the landlord can budget for this at a more affordable cost.

  • Conversely, what are the reasons for choosing a repayment mortgage over an interest-only for an investment property?

A repayment mortgage allows the landlord to pay off the mortgage loan over a specific term,  the longer the term the lower the monthly mortgage payment but the more interest is payable.

When at the end of the term the mortgage is finished, the property has total equity to that of the valuation which would increase the yield on the investment at this time. This repayment method is generally beneficial to landlords who don’t require the income at the present time but want to build their assets for the future i.e. to supplement their pension.

  • If a landlord has a change of financial personal circumstances, do mortgage companies provide mortgage breaks?

The majority of lenders don’t provide any mortgage breaks, if the monthly mortgage payment is missed it is usually identified as a missed payment or mortgage arrears on the borrower’s credit file.

  • What happens if I miss a payment?  Will the mortgage company put the property into receivership?

If a monthly mortgage payment is missed the lender has to treat the borrower sympathetically. It is paramount to inform the lender of the situation as soon as possible and explain the reason why the payment hasn’t been paid.  The lender will endeavour to provide a payment plan to help the borrower to pay the arrears and get back on track with their payments.

The lender will always have a risk warning on their mortgage documentation : ‘ Your property may be repossessed if you do not keep up repayments on your mortgage’.  A repossession of the property is a last resort for the lender as it can prove to be an expensive action to enforce.

  • Should I remortgage my own home and buy a rental property outright?  What are the implications of this?

You can re-mortgage your own home and release equity to purchase a buy-to-let property. If it is the intention of the investor to do so they could benefit from a lower interest rate on a residential mortgage and lower costs, e.g. arrangements fees and valuation fee.

However, there are implications and the main one being the liability of the mortgage is secured on your residential property and not the buy to let property. The other implication is at present you can claim for the interest portion of the loan as a cost for tax purposes using this strategy would negate this.

  • Do I get a better mortgage if I structure the portfolio as a company or as an individual?

At present there are no preferential mortgage rates for an individual or for a limited company.  Many lenders will not accept business for buy to let investors as a limited company.

  • What one piece of advice would you give anyone thinking of becoming a property investor?  

You must ensure you research the costings accurately and assess the risks of investing in buy to let property thoroughly.     
Reading over Steve’s responses to my questions, I conclude that the best advice is to research the area you are buying to ensure the property is good value and to shop around for the best mortgage for your circumstances.

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