Investing in Buy-to-Let Property: How to secure the best mortgage deals in uncertain times

Most people who have bought a home have considered the idea of investing in Buy-to-Let property at some point or another. Buying to let has become an increasingly popular investment option in recent years, due in large part to the low interest rates that have been the norm since the financial crash of 2008. Despite this, however, there are still significant risks associated with property investment that make it imperative to secure the best Buy-to-Let mortgage deal you possibly can. 

In this feature, Jonathan Southgate, Mortgage and Protection Advisor at Sterling Southgate, outlines considerations for existing and new investors seeking to fund their next investment property with a Buy-to-Let mortgage.

Making the numbers work

Whether you are an experienced investor or are purchasing your first Buy-to-Let property, one principle always applies – the numbers need to work.

For this reason, individuals need to seek advice from a trusted professional who can look at their existing portfolio as a whole piece rather than at a macro level.

This approach means that investors will have access to current advice. As individual circumstances vary significantly, a professional advisor can look at the broader picture, considering future plans when mapping out the best options for the investor.

Assess your Buy-to-Let property portfolio

Property values and rental prices hit a market peak in 2022, meaning now is the right time for those holding a property portfolio to reassess their options.

Rising interest rates affect highly-geared landlords with long-standing tenants who have not conducted rent reviews for a while. However, adjusting rents to reflect local market rates can override the pinch felt by rising interest rates.  

For example, the average UK rent has risen 8.5% over the last 12 months, according to HomeLet’s Rental Index. Those on the ball have capitalised on increasing rents to balance the numbers on their investment.

If you haven’t assessed your portfolio in a while, you may have more equity in your property than you realise. Landlords in this scenario are in an ideal position to release equity from existing assets in a bid to borrow more to fund their next rental purchase.

There is a high volume of landlords on standard variable rate mortgages. While this may have been the best option in the past, seeking professional advice to determine whether a fixed rate is more favourable and protect against further interest rate rises could be an option for those looking to get the most out of their portfolio. 

The best way to look at it is to think less about what you have and more about what you can secure and improve.

Considerations for first-time investors

Over time, bricks and mortar make money, so first-time investors can stand to secure higher returns through property investment versus holding cash in low-interest savings accounts.

For new landlords, it is essential to understand the area you want to buy in and your goals to ensure you achieve a desirable return on investment.

Buy-to-Let remains a great investment as long as you get the numbers right, which is why you should seek advice from an independent professional.

Have you considered interest-only options?

Over the last 15 years, the mortgage industry has seen a major shift in investors’ attitudes towards borrowing.

Interest-only mortgages have become commonplace, allowing landlords to keep monthly costs down whilst achieving a higher income from their property. Interest-only mortgages, by nature, have a lower monthly mortgage cost when compared to repayment mortgages reducing the effects of void periods if the asset is unoccupied.

Investors adopting this approach still benefit from any uplift in the property’s value when they wish to dispose of the asset later down the line.

Find more statistics at Statista

The future of interest rates 

Having seen sharp increases in interest rates following Liz Truss’ government’s failed economic policy and subsequent U-turn, it is felt amongst many in the industry that the rate pressure experienced was forecast but accelerated. Some thought interest rates would rise over a number of years rather than weeks. Inflation remains the Bank of England’s biggest challenge so we can anticipate further base rate increases; however, this may not be passed on to borrowers by all lenders. 

I suggest borrowers look at both two and five-year fixed rate options. Previously, a two-year option was cheaper to fix than a five-year mortgage; however, as the market currently stands, 5-year options may be cheaper. 

This could be a sign that interest rate rises could be short-lived based on the assumption that lenders wouldn’t offer deals that would lead them to make less money with a five-year fix.

We are yet to see how the cost of living and the war in Ukraine could affect the sector, how the industry reacts to the government’s U-turn on the energy price cap and what plan they hatch to help the public with future cost of living increases. So there are still many variable factors in play.

Investing through a Limited company 

Purchasing investment property through a Limited company is an interesting strategy, and it can have tax benefits under the right circumstances.

Investors should consider their long-term goals to decipher whether this strategy will work for them, as this route can favour those planning to build an extensive portfolio of properties.

If you plan to own only a handful of properties, purchasing through a Limited company may not be the right approach. Again, seeking professional tax advice would be the best way to establish if this strategy is right for your goals.

For more information, visit sterlingsouthgate.com

Thoughts about investing in UK Buy-to-Let with a mortgage

As was always going to be the case, and as is becoming increasingly apparent now that interest rates are set to rise at some point over the coming months. This means that it makes sense for anyone interested in investing in Buy-to-Let property with a mortgage to consider investing sooner rather than later if they haven’t already secured a good mortgage deal. 

Contact Mobibi Invest for more information about our latest Buy-to-Let opportunities.