With tax changes and rent inflation slowing down in some parts of the UK, generating profit from property investment is becoming more difficult.
Identifying ways to reduce outgoings is now an even bigger priority for property investors and landlords, and finding the most competitive mortgage deal is key to achieving healthy profit margins.
Even a small interest rate difference has a significant financial impact over the term of a mortgage, so it is worthwhile reviewing all your options before applying for your property investment mortgage.
In this article, we explore the different types of mortgage products available to property investors and the factors that will impact eligibility for the best rates.
The different types of property investment mortgages
The most common types of property investment mortgages are:
- Buy to Let (BTL): This is the most common type of property investment mortgage, used for landlords to buy residential properties that they rent out to tenants.
- HMO: A specialist mortgage for properties classed as a House in Multiple Occupation, typically where five or more unrelated tenants live in the property and share amenities.
- Limited Company Buy to Let: Limited Company Buy to Let mortgages are an alternative option to fund property investments.
- Holiday let: For properties that are used as short term lets such as holiday cottages or apartments.
- Commercial: Mortgages to buy commercial properties such as offices, retail or warehouses to rent to businesses.
- Bridging loans: Used by property developers for property flips or buying property at auctions.
- Portfolio landlord: If you have more than four rental properties, you can take out a mortgage for your whole portfolio.
Loan to Value (LTV) ratios and their impact
Access to the most favourable mortgage rates as a property investor depends on a number of factors and the LTV is one of the most important. Investors with a lower LTV are regarded as a lower risk to lenders and therefore preferential rates are generally offered.
For example, an investor with a 40% deposit (60% LTV) will usually be able to get a more advantageous mortgage rate compared to a 20% deposit (80% LTV).
Mortgage applicants with a low LTV of 60% or less will generally be able to benefit from more competitive rates. A higher LTV of over 80% will usually mean higher interest rates.
The difference between the rates for high or low LTV will depend on the current market but it can be the difference between paying 4% or 5% interest, for example.
