Buy-to-let & Landlord mortgages

Unlike in many other countries, much of the rented sector in the United Kingdom is funded by private individuals. These investors have access to specialist commercial loans called buy-to-let mortgages. A buy-to-let mortgage allows someone to buy a property to let out to a paying tenant.

Buy-to-let mortgages first came onto the market in the 1990s. Before this, landlords used business loans to fund acquisitions. This often entailed larger up-front deposits and higher interest rates. In 1996, lenders began offering loans with similar costs and features to traditional mortgages.

This made a dramatic difference to the rental market. In the years since, buy-to-let mortgages have gained tremendous popularity. Several firms, from small specialist lenders to large high-street banks, offer buy-to-let finance. High-street lenders often do so under a different brand name, to differentiate the two types of business.

Most buy-to-let mortgages do not fall under Financial Conduct Authority (FCA) regulation, the aim of which is to protect consumers entering into financial contracts for products with which they may be unfamiliar. The FCA sees buy-to-let investment as a business activity and expects that buy-to-let investors will generally have an understanding of the risks involved. It oversees consumer buy-to-let (CBTL) mortgages and regulated mortgage contracts only.

Types of Buy-to-let mortgages:

• Remortgages
• Limited company mortgages 
• Mortgages for HMO & student let properties
• 85% LTV
• 80% LTV
• 75% LTV 
• Interest only 

Commercial mortgages and finance

Commercial properties, such as shops, offices or industrial buildings, appeal to both property investors and to businesses. Investors often buy commercial property to diversify their rental portfolios. Businesses buy commercial property if they wish to own, rather than rent, their own premises.

The acquisition of a commercial property will often entail a loan in excess of £50,000. For loans of this size, an unsecured business loan is not always suitable, as lenders need security to minimise their own risk. A secured commercial mortgage is more appropriate.

But commercial mortgages are not just used to fund purchases. By refinancing a commercial property, an investor or owner can release equity to buy equipment or stock, provide a cash flow boost, or for most other legal purposes. In this respect, commercial mortgages are larger and more complex versions of business loans.

Commercial mortgage rates are usually variable rates that are linked to the London Interbank Offered Rate (LIBOR). Unlike buy-to-let rates, commercial rates tend not to be predetermined. Because each case is unique, lenders assess, price and underwrite them on an individual basis. The loan features will depend on the nature of the property, the industry sector, the occupant and the length of the commercial lease.

Bridging loan finance

Situations can arise where a debt becomes due before the debtor can secure the funds needed to pay it. For these situations, bridging loans exist.

During property auctions, for instance, there is a tight time frame to complete the transaction. In this and many other cases, quick funding may be necessary to take advantage of an investment opportunity.

Bridging loans ‘bridge’ the gap between the payment date and the longer-term credit becoming available. They are designed to be fast and efficient, and are more adaptable for different kinds of security. For instance, property developers can secure bridging loans on undeveloped land or uninhabitable property.

As such, bridging loans can be costlier than longer-term funding options. Borrowers will need an ‘exit strategy’ to repay their loan, which in most cases will be either long-term credit or proceeds from a property sale. Depending on the credibility of the proposed exit strategy, a bridging loan will be either ‘open’ or ‘closed’. Closed bridges are less risky, and thus cheaper, than open bridges.

Find out more

Get in touch to discover more about the different types of financial solution we can access and how they can help you with your next property investment. Call us on the number at the top of the screen or enquire now about your next buy-to-let mortgage, commercial mortgage or bridging loan application.

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