Investment Mortgage
Investment Mortgage | What Every Profitable Landlord Should Know
There are several factors that landlords need to consider before taking out an investment mortgage. Property is often seen as money in the bank, hence the growing popularity of the investment mortgage sector. However, this does not mean that the minute you buy an investment property, this money is available to draw on.
Before undertaking an investment loan, consider what has happened to property in the last 20 years. In the 1980s, the property market was at its height, with a succession of deals on houses and money changing hands frequently. A mortgage at that time would have looked like a sure bet, and it was - in the long term.
However, the short term picture for those getting an investment mortgage in the 1980s would have been different, because the bottom fell out of the property market, driven by economic recession. Houses were being repossessed on every corner, and many people found themselves with negative equity. In the short term, property was not 'as safe as houses'.
The long term outlook for property investment is very different, however, and that may make an investment mortgage worth considering. Even those properties whose value crashed in the 1980s have had prices rise again, as the market goes through another boom. This is especially the case in London, which is leading the property boom, but property has been appreciating in value across the UK.
The point of this is that landlords who are taking out a mortgage need to be prepared for any short term or medium term dip in property value. In other words, an investment mortgage should be a long term proposition. That's the only way for landlords to be sure that they will get a long term return on their investment.
BTL Mortgage Gains
Of course, there are also short term gains to be made. These can come from the rental income, but even that is not secure. That's why landlords are well advised to make sure they have finance in place (perhaps through savings) that can repay the mortgage if the property is vacant for a time. It is not always possible to guarantee that a property will be constantly let.
It is also useful for landlords to consider the outgoings that might reduce the amount of short term income they receive. New landlords might wish to have professional advice on letting the property as well as help with the process. This can cost 10 to 15 per cent of the monthly rent. There will also be a cost involved in refurbishing the property. An investment mortgage may cover some of this, but landlords may also have to fund some renovations from their own pockets.
Landlords who are undertaking an investment mortgage should also seek advice on their tax liability, especially as it relates to their income and expenditure when letting a property. They should also consider what their legal obligations are and whether they can meet them before they get an investment mortgage.
