- Patrick Maflin
A chef once said to me that his favourite food was Italian, due to the philosophy behind it of minimum effort, maximum return.
It would be nice if all buy-to-let investments could be like this and to a degree they can be if properly managed.
There are still lenders out there that will lend to non-residents, however the rates for offshore mortgages are considerably higher than those that are available onshore.
Contrary to popular belief Seafarers are still eligible for onshore mortgages, but there are now fewer banks lending.
If you want to be considered for an onshore mortgage you need to start filing an annual tax return.
Banks will only take you seriously if you start playing by their rules and not trying to buck them!
In this article, we explore the best ways to get the maximum return from your buy-to-let properties.
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When I first started to look at investing in property I decided to sit down with a local developer who had built an impressive property portfolio.
I wanted to discover what his top tips were and as a result, found these to hold true over the years.
It is important to buy in areas that will provide the best return on investment.
You do not want to be buying property in a depressed area that has little hope of being turned around.
It is key to look carefully at proposed developments in the area.
For example, if there is an application for a large refuse site to be built near to the property that you are looking to buy, then this is best avoided.
However, if a high-speed rail link or new stadium is being built, then it might be advisable to invest in an area that was previously overlooked.
We live in the information age where as we all know, key data is accessible at the click of a button.
The Land Registry is also a rich resource and information is available for a small fee.
It is important to carefully research your area and not be afraid to think outside the box.
Once you have decided upon the area that you would like to buy in and started to see property you are considering, it is essential to start the mortgage application process.
It can be quite a reality check when you make an offer on a house only to find out that a lender will not provide you with a mortgage.
A mortgage broker can make the difference between you being approved for a mortgage or declined, but please remember that brokers work on a commission basis so it is advisable to shop around.
Although it is also important to recognise that mortgages for seafarers are a specialist area and not every lender will consider you.
Investors tend to opt for interest only as the monthly payments are lower which provides you with the opportunity to positively gear your property.
The profit accrued from rent can then be used to save for a deposit for your next property.
The Bank of England’s base rate is in the single most important factor when looking at mortgages.
You need to ask yourself whether it looks like the rate will be going up or down.
There are some people that opted for tracker mortgages in 2008 and were in a wonderful position come 2009 when the base rate was slashed to 0.5%.
However conversely those that find themselves on trackers in a rising market can quickly find that their rental income doesn’t go as far as it previously did.
There are three main types of mortgages on the market:
1. Tracker Mortgages
A type of variable rate mortgage that tracks movements of another rate, most commonly the Bank of England Base Rate.
2. A Standard Variable Rate
A type of mortgage interest rate that you are most likely to go onto after finishing an introductory, tracker or discounted deal.
3. Fixed Rate
This type of mortgage offers a means of guaranteeing your mortgage payment over a set period. Fixed rates can range from a 1 to 10 year term.
If you believe that the base rate is about to rise within the term of your mortgage then it would be worth looking at a Fixed Rate, conversely if the base rate is likely to be lowered then a Tracker might offer a better return.
Often times the biggest mistake that Buy to Let investors make with regards to mortgages is that they allow them to finish their term and go onto a standard variable rate.
Banks, like casinos, will always win so make sure that you switch products just as they come to the end of their term.
Standard Variable Rates are not based on the base rate and your lender is at liberty to increase this by any amount- so be warned!
It is important to read the terms of your mortgage and understand the fees involved.
You cannot simply base your decision on the interest rate alone.
It is important to consider the arrangement, legal, and early redemption fees.
The tax increases on Buy-to-Let properties initially affected the higher rate taxpayers in 2017 and by 2020 Seafarers will also be affected by the changes.
It would be advisable for those of you who currently have Buy to Lets to start paying down your mortgages.
It has been forecast that by 2020 Seafarers who have 25% equity in a property will no longer make any profit from their investment aside from capital appreciation.
Interest only mortgages do still provide you with the ability to make lump some payments to reduce the size of your loan.
There has been a steep increase in the number of Limited Companies now applying for mortgages as Buy to Let Investors in order to reap the benefits of Corporation Tax at 20%.
It is difficult to borrow as a Limited Company if you only have 1 or 2 properties.
However as you become more established as a landlord and your portfolio grows this option will become feasible.
Once you have factored in all your direct and indirect costs, profits from rent may never be as good as you may have first predicted.
Furthermore if you have allowed your mortgage to go onto a Standard Variable Rate there is a distinct possibility that they will be wiped out entirely.
It is essential to switch your mortgage each time it comes to the end of its term.
There are some great products on the market today with record low rates, no legal and valuation fees.
Speak to Us or Comment!
If you would like to find out whether you qualify for a mortgage or can switch lenders, then speak to one of our team for more information.
Get in touch with us today or let us know your thoughts in the comments section below.
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Any advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.