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The minimum deposit you will need for a buy to let mortgage is currently 15% for home owners. At this level of deposit the choice is very limited
So how much deposit should you put down?
If you minimize your deposit then you can borrow more and so buy more properties; this maximises your capital gearing.
If you borrow more then you will reduce your income tax liability; the higher your mortgage payments, the lower your net taxable income.
On the other hand, if you are able to increase the deposit then you are likely to get lower interest rates. The best buy to let mortgage rates are available with a 40% deposit.
Most buy to let landlords use a 25% deposit, this provides a good selection of rates without using up all of your funds.
Some lenders will allow part of the deposit to be paid by the vendor. This is known as a 'vendors gifted deposit'. This type of arrangement may be offered by a house builder as part of a promotion or as a discount from a relation.
For a vendors gifted deposit to be acceptable, it should be non-repayable. The surveyor will have to confirm the value of the property is market value before any discount is applied.
The deposit for a buy to let property could be raised from savings or investments. You can also raise the money from the equity in another property - your home for example. You can either approach your current lender for a 'further advance' or you can remortgage the property to another lender. You can submit both mortgage applications at the same time.
We recommend that you do this through a mortgage broker such as ourselves.
As part of the application process, the lender may request evidence of the deposit. This would normally be a bank or investment statement.
Once the mortgage offer has been produced and your legal advisor is happy with the legal status, you can exchange contracts. Exchange of contracts is the legal agreement to purchase the property. It is quite common (though not obligatory) to pay a deposit to the vendors solicitor at this stage.
The amount of this deposit is negotiable. Normally you will pay the deposit to your solicitor who will forward it to the vendors solicitor.
We strongly recommend that you do not pay a deposit unless you have a mortgage offer in place AND your solicitor has confirmed that is is safe to do so
The balance of the deposit (if any) is payable on completion. It is quite common for your solicitor to request these funds in advance of completion so that the funds are in place.
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