How to Finance your Buy-To-Let Property in Warrington

Recently I have been getting a lot of emails from first time landlords in and around Warrington. The biggest thing that stood out to me is how hesitant first time investors in Warrington are and this can be for numerous reasons, a question that keeps cropping up on the emails Is “how do I finance my buy-to-let property”

Here at Hamlet Homes we are always keen to encourage people to research their own buy to let (BTL) mortgages, but there’s no doubt it can be very daunting.  There are a few key concepts you need to understand and I’m going to outline them here for you.

What mortgage do I need?         

                                                                 

Most investors choose to take out interest only loans, because the interest can be set against your rental income, making this a relatively tax efficient transaction.  The lender will look at your credit file, and most expect borrowers to have their own home mortgaged or owned outright and have a minimum income of around £25,000 – although this varies depending on the lender.  Some major lenders like Birmingham Midshires and The Mortgageworks don’t require earned income, but their credit score is consequently more onerous, especially at higher loan-to-value ratios (LTVs).

How will my credit score and income be calculated?

Credit scoring plays a key part and having a high credit limit on a card can increase your credit score. However, using the credit facility regularly can reduce it quite dramatically and your credit score will be spared from impairment if your balance is below 50% of your total credit limit. Lenders can be fussy about what they include when calculating your income, and most disregard the forecasted rental income that the property will command.  They also tend to favour employed income from a payroll, and things like bonuses and earnings from zero-hours contracts may be overlooked.

What about lending criteria?

Rental income must cover 125% of the mortgage but almost all lenders now calculate prospective payments at a higher notional rate of 5%, rather than the agreed mortgage interested rate. This makes it harder to obtain finance and is aimed at acclimatising borrowers to the likelihood of interest rate rises in the short to medium term.  Lending policy also tends to favour landlords with smaller portfolios and most lenders place a cap on how many properties you can own, regardless of who the loan is with – usually between 3 and 10 or if not, a cap on how much you can borrow overall.

And what interest rates should I expect?

In 2009, typical buy to let interest rates were around 5.25% with often an arrangement fee of around 2.5% of the loan applied, but thankfully rates and fees have fallen considerably, and at 75% LTV you are now looking at an interest rate 2.5% to 3.5% with fixed fees of less than £2,000. If you have a bigger deposit and can stretch to a 65% LTV, rates can be as low as 2%.  New entrants like Virgin Money, The Mortgage Trust, Precise and Aldermore – though not always the cheapest – have helped to increase competition.

How long will the process take?

The whole application process can be very slow and pedantic – with an average completion of 8 weeks –and the big three BTL lenders have about two thirds of market share partly because of their speed and efficiency: TMW, BM and Godiva. 

Should I use a broker?

Around two thirds of landlords choose to use a broker but be aware they may steer you towards specialist lenders who are not necessarily the best value.  Often building societies who mostly deal direct with customers can have some of the best deals, so try carrying out your own research by looking at interest rates.

Is it ready to let?

Mainstream lenders will require the property to be habitable and ready to let in order to proceed, which means a working kitchen and bathroom and no damp or subsidence.  Many won’t lend to flats over four storeys high, flats over commercial outlets or to freehold buildings containing flats. For situations where the property requires works, you could try commercial lenders like Lloyds, Shawbrook, Bank of Cyprus, private or other high street banks, but expect to pay an arrangement fee of at least 1% and interest rates of around 4% on loans of up to 70% of the value of the property.  Interest-only loans are harder to come by in this sector and your repayment term will be shorter – say, 15 years instead of 25 – but there won’t be any caps on the number of properties you own. 

Is bridging finance for me?

Bridging financers are the funders of last resort, usually lend on a non status basis at 65% LTV, and involve much higher costs of generally around 1% per month with no arrangement fee. It’s a bit like buying on a credit card. The advantage is the property can be in any condition – within reason, but be warned: never obtain bridging finance without a clear exit strategy and be aware that you will be stuck on it for six months before you can apply for a remortgage.

Growing a portfolio

I hope this has all been useful. Remember, once you have a mortgage, and if the property increases in value, you can think about growing your portfolio by releasing equity and applying for a further advance.  People often release funds from their own homes in this way to buy an investment property. Its called capital raising, and most lenders will allow it for the purposes of buying property, though they may insist you own the property for 6 or sometimes 12 months, and apply a lower LTV.

I myself am a Landlord and I have explored plenty of different creative options, I have shared my experience with Warrington landlords I currently work with. If you are looking to invest in the Warrington Property Market and the finance side of things is putting you off then why not pop in for a chat if you are in town. There is plenty of free parking, my office address is 6 Bankside, Crosfield Street, WA5 0LR, alternatively you can catch me on email which is manoj@hamletwarrington.co.uk or on the phone 01925 235338.

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Ask Andy – “How Much Rent Can I Really Get For My Warrington Property?”

Landlord’s Question:

“Hi Andy,

I have been following the Warrington property blog for some time now and really enjoyed reading the ‘Ask Andy’ section last month. I have a rental property in Warrington – a 3 bedroom semi on Smith Drive. I have no problem letting it. It’s usually snapped up within a week of advertising.

The current rent I get for it is £625pcm. The property will be empty in 2 months and I wanted to ask you how much rent can I actually get for my Warrington property?

Am I under or over charging?

Thanks,

Neil”


Andy’s Answer:



Hi Neil, I’m glad you enjoyed the ‘Ask Andy’ section last month and thank you for following the Warrington Property Blog. Now, you raise an interesting question. Without actually coming out to see the property I will have to work with averages. The average rental price for a 3 bedroom semi on Smith Drive is £750pcm.

As you can see, you are currently under charging and this will explain why your property isn’t on the market long when you list it as to let! However, I do get asked this question at least one or twice a year, so I think it would be fair to explain my thoughts behind an appraisal and how I arrive at the figure in the first place.

Getting the Most from your Property

When you are renting out property, you want to be able to maximise your profits, whilst also being fair with prospective tenants. If you charge rents which are too high, you are likely to put people off, which can make it difficult to get your property let.

These are some basic points landlords should consider when trying to find the right rental price to charge tenants.

Location VS Competition VS Demand

The location of the property is one of the main considerations when it comes to pricing up your rental property. If the property is in Stockton Heath, Appleton, Grappenhall, etc then the numbers will naturally differ as these are the most desirable areas in Warrington.

I was conducting a best price guide for one of our Warrington landlords in the Great Sankey area recently and within a 1/4 mile radius of their postcode, there were over 9 similar properties available to rent! Two of the properties are still being marketed since first being listed in October 2016!

Unfortunately, the demand for properties in this location did not outweigh supply… quite the opposite. So in these situations, I would recommend marketing the property just under market value to give you a competitive edge. Yes, you can hold out for that extra £25 a month but – here’s the kicker – holding out for £25 more on the rent could lose you £725 per month! How many £25s go into £725?

For out-of-town properties, you may have less competition. However, if you over-price, you will still struggle to let it out. The key is to find a balance between what is currently available against what has been let in the last 6 months (and take into consideration what your appetite is to get a quick let and reduce any void periods.)

Know your Target Audience

You should also think about the type of tenants you are looking for in your property. Are you happy for students to let your property or would you prefer working professionals?

We recently took on a 7 bedroom HMO in a student area, but the landlord didn’t want students. Needless to say the property remained on the market for a while as, due to its location, the demand for professional tenants was low and the property just wasn’t filling until the landlord agreed to open up the net and allow students… the property was quickly fully let thereafter.

Size of Property

The size of the property is another consideration and also any additional extras, such as a garden/driveway/en-suite/additional WC/garage. Again, looking at properties of a similar size will help give you a better idea of the best rates to charge.

Amenities / Transport Links

You should also consider the local amenities. If you are situated near shops, surgeries and town centre you can definitely charge more for rent. The opposite is also true…some people like to be away from the ‘hustle and bustle’ of people and cars and therefore, the outer semi-rural areas would be more appealing to them. Proximity to train stations and bus routes play a vital role in pricing up your property. In Warrington we are fortunate to have the added bonus of being in the middle of the motorway network.

Furnished / Unfurnished

Furnished properties are generally more expensive than unfurnished, although not in all cases. You may want to think about furnishing the property (although the cost of maintaining the furnishings may be prohibitive and in the end counter-productive against your net annual yields).

So Neil, these are the things I take into consideration when doing an appraisal. Although I cannot give you an honest figure, I can tell you that your current rent is much lower than the average. Providing your property is in a good condition, I see no problem as to why you cannot advertise your rental property once it’s empty for £700+ per calendar month.


If you are looking for an agent with experience that can help you price your property and find the best tenants for it, then contact us to find out how we can get the best out of your investment property.

Email me on andy@hamletwarrington.co.uk or give me a call on 01925 235 338. Pop in for a chat – we are based on 6 Bankside, Crosfield St, WA1 1UP. There is plenty of free parking and the kettle is always on.



-Andy



Don't forget to visit the links below to view back dated deals and Warrington Property News.

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What type of Warrington property will sell best in 2017?

Welcome back to the first Warrington Property Blog article of the New Year! I hope you all had a lovely festive break with your friends and family.

I thought this would be the ideal time to talk about the weather… (I’m joking!)

So what type of property will sell best in Warrington? 

Knowing how saleable a property is, is half the battle when deciding what (or what not) to buy for your next property investment. Why? Well because, one day, you may need to sell that property. If you go into the purchase with open eyes, you know most of the risks – and can barter the price accordingly if you have to.

Bearing this in mind, last week, a newbie landlord from Runcorn popped into our offices to ask about investing in property. His concern was if we have another property slump (and we will because that is what has happened to the British property market ever since the 1950’s), if he did need to sell, what type of property would be easiest to sell. Now, everything sells, even during a slump, but I did some research and followed up his query – I was actually quite surprised with the results.

A good guide to judge the ability of a property to sell is the number of properties for sale, compared to the numbers that are sold, subject to contract.

I carried out this comparison last week, so the numbers will be marginally different today, but of the 283,656 households in Warrington there are 2,041 properties on the market for sale. Of those 2,529 properties, 1,206 properties are fully available on the open market waiting for a buyer and 1323 have buyers and are sold subject to contract. That means 52.3% of property on the market has a buyer in Warrington.

However, if we delve deeper: in Warrington today, a reasonable 29.8% (162 of 543 houses have buyers) of detached houses on the market have a buyer. It’s great news for semi detached property owners, as 49.4% of them have buyers (almost 50%, which is great market activity as 264 of the 534 have buyers). Terraced houses fair slightly better than detached houses, with 232 of the 511 on the market now having buyers (making 54.6%). The properties that appear to be sticking are apartments, which are comparatively lower than a semi detached house, coming in at 34% (81 buyers out of 238).

You must have a plan when investing in property – are you doing it for the yield or are you looking at it as a long term investment?

Looking at the research above its clear to see that if you are looking to invest in a property that will be easy to sell down the line, then it’s between the semi detached and terraced houses in Warrington. However, each of these have to be approached with different strategies.

If you are a reader of my blog you will know I am fond of my two up two down terraced houses in Warrington, as they can be picked up for around £70 – £80k in most cases. They can be ready to let for around £495pcm, roughly giving you yields of around 8%.

However, the average price of a three bed semi detached in Warrington is around £150k - £155k with rents on average at £750pcm, which gives you a yield of around 6%. These three bedroom semis tend to be in high demand and have very few voids. Although the upfront cost is larger and the yields are not as great, you can expect some good capital growth in the near future.

If you are looking for an agent that is well established, professional and communicative, then contact us to find out how we can get the best out of your investment property.

Email me on manoj@hamletwarrington.co.uk or call on 01925 235338. If you are in the area, feel free to pop into the office – we are based on 6 Bankside, Crosfield St, WA1 1UP. There is plenty of free parking and the kettle is always on.

Don't forget to visit the links below to view back dated deals and Warrington Property News.

Blog, http://warringtonpropertyblog.co.uk/

Facebook, https://www.facebook.com/hamlethomeswarrington

Twitter, https://twitter.com/HHWarrington

Website, http://www.hamlethomeswarrington.co.uk