Buy to Let Mortgage needs planning

Buy to Let Mortgage needs planning

Buy to Let mortgages are going to struggle in the mortgage industry background with COVID-19 developments. It is a challenging period for everyone. However, current buy to let mortgage holders and new potential landlords are going to struggle due to several reasons. Therefore, it might not be the best time to invest in buy to let properties. From a positive perspective assuming social circumstances becomes normal, there is potential for new developments in the buy to let mortgage market.

Low demand for tenancy

It is evident that the demand for tenancy is going down due to the pandemic. It has become really hard for someone who purchased a BTL property for the first time with a 75% mortgage to find tenants and manage the mortgage payments with the rental income. For someone who is refinancing their BTL mortgage, it has become difficult to convince the lenders on the certainty of future tenancy and contingency plans. There is a high possibility of void periods coming up and buy to let mortgage holders do need to do lots of planning!

Buy to let mortgages refinancing valuation delayed

All the physical mortgage valuations have been delayed by lenders due to rules and regulations on social distancing. Even-though they have started physical valuations gradually, residential mortgage valuations would be prioritized over BTL mortgage valuations. If your lender is a specialist BTL mortgage provider, this is not applicable. However, if your lender is from high-street or international banking, there is a high risk of your valuation is further delayed because of the long waiting lists.

The worst-case scenario of the delays in valuations would be landlords having to pay the lender’s standard variable rate after your current deal end. However, it is critical to highlight that you have to make an interesting choice here. It is whether to wait for the new lender to do the valuation staying on a variable rate for a certain period or to do a product switch with your existing lender. Well, your fin-tech mortgage broker needs to do some number crunching here to find out which options suits you the most. They can consider a three months period and calculate the cost incurred for both scenarios. Then, they can arrive at a conclusion based on the total cost incurred.

Portfolio land lords are going to struggle

There are landlords who are managing four or more Buy to let properties. These portfolio landlords will find it difficult to manage their service charges and maintenance cost. Further, due to wage cuts all over the world, tenants might not be able to meet the rental payments on time. The pandemic has influenced everyone’s income and receiving rental payments and handling other expenses will be a real challenge.

Specifically, if you have an HMO property, there is a high chance of tenants moving out. Among tenants, there are reasonable amounts of foreign students and employees. These people are very likely to return to their home countries. So, HMO landlords will struggle in terms of demand for tenancy. The best way to mitigate these risks would be to apply for mortgage protection insurance which covers your mortgage payments.

Do not cut down on the deposit

If you are planning to go with a deposit of 15% or 20%, you are going to struggle when it comes to remortgage after the end of your fixed deal period. It is simply because products in the range of 80% to 85% LTV bracket are much expensive. You will have to contribute money towards the mortgage to bring down the LTV to 75% mark, in order to secure a good deal. So, it is not a good idea to move into a BTL mortgage with a smaller deposit as there is a high risk of you paying more interest over the term of the mortgage.

On the verge of economic downturn

Whole of Europe, the US, Canada, and Australia are on the verge of economic downturn irrespective of how strong their internal economic structure is. International business has been hit heavily by the pandemic. The property investment market is also facing the circumstances of these developments. Specifically if you are an ex-pat who is looking for an ex-pat mortgage in your home country to purchase a property for investment purposes, it might not be the best of times to do so. It is best to wait and watch how the market reacts to the post-COVID situation and then makes decisions.

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