How to borrow more on your buy to let
Interest rates have gone up, the cost of your buy to let mortgage is higher, you can’t borrow as much as you once could and you can no longer finance the new purchase or refinance that mortgage where the fixed rate has expired.
Buy to let mortgages are based on the rental income exceeding the cost of the mortgage by a set percentage. With limited company buy to let mortgages this usually means the rental income exceeding the cost of the mortgage payment by 125%.
Where the mortgage is on a variable rate the cost of the mortgage is usually stressed with the rental needing to exceed the stressed figure by 125%.
Higher interest rates, higher mortgage cost, the less you can borrow for the same rental income.
So, how about you flip that the other way?
How to borrow more
Affordability is based on the ongoing cost of the buy to let mortgage. Lenders charge an arrangement fee and then interest, how about a higher arrangement fee and lower interest rate?
Let me show you how this works:
This example shows the difference:
- Your property has £1,500 per month of rental income
- A buy to let mortgage at 5.49%, with a 2% arrangement fee, you could borrow £262,295
- A buy to let mortgage at 4.49%, with a 7% arrangement fee, you could borrow £320,712
- That is £58,417 more borrowing on a buy to let mortgage which has the same total cost of the borrowing over 5 years.
This pdf gives you more details.
By flipping how you normally look at things you can find a way that costs the same but works so much more in your favour.
If you look at financing the same when interest rates are low and interest rates are rising then it isn’t going to work. You need to look at the options compared to the wider market and what is happening in the econ0my.
If you are looking at your next buy to let purchase, or have a deal expiring this year then bear this in mind and feel free to get in touch.
By Dave Farmer