Is Now A Good Time To Get A Buy To Let Mortgage?

Approximately 60% of landlords will use a buy-to-let mortgage to secure their next property investment, making this the most popular method of growing a property portfolio. However, with the Bank of England routinely increasing interest rates and mortgages becoming more expensive, many landlords are dubious about acquiring a buy-to-let mortgage for their next property purchase.

In this piece, we’ll be covering the state of the mortgage market, how you can generate returns despite market difficulties, and why 2023 is the perfect time to obtain a mortgage for your next buy-to-let investment.

What Is A Buy-to-let Mortgage?

Buy-to-let mortgages differ from typical mortgages and come with unique rules. Typically, purchasers will have to put down a deposit of 25% on their chosen investment property, which is significantly higher than a typical mortgage to buy a primary residence, with some companies now offering 0% deposit mortgages for first-time buyers. It’s not just deposits that are high for buy-to-let mortgages: fees and interest rates are also typically higher on these forms of lending. However, this isn’t all bad news – most investors choose to pay off their mortgage using interest only repayments, meaning that they only pay off the interest on their mortgage. This lower payment alternative keeps costs to a minimum.

What Is An Interest Only Mortgage?

Paying off just the interest on your mortgage sounds counterintuitive – what happens to the money you borrowed? How do you repay this to your lender? And why is this option only available for buy-to-let?

Once your mortgage term is up and you need to pay back the original sum of money you borrowed for your investment, many landlords choose to sell their property to recoup their initial investment and repay the lender. This is a fantastic option for landlords who have tactically chosen to purchase properties in areas of high price growth, as the cost of sale at the end of the mortgage term will most likely be far more than the cost of initial purchase. This capital growth can then be used as income or as a deposit for expanding a buy-to-let portfolio.

The Current State Of The Mortgage Market

Many landlords are concerned by the state of the current property market and may be deterred from making further investments due to rising interest rates. At the time of writing, the Bank of England has just increased interest rates for the twelfth consecutive time to 4.5%, which has been met with fear from investors – but fear not. Those utilising the aforementioned interest only repayment method will most likely still be able to generate a steady yield from their buy-to-let investments, or at least cover mortgage costs with rental income, even if interest rates are on the rise, as this is a lower cost approach that maximises revenue.

What’s more, yields have remained steady in many areas as rents have increased in line with rising interest rates. Fleet Mortgage’s rental barometer shows that, as of Q1 2023, rental yields have increased across all UK regions over the past twelve months as landlords increase their rent to mitigate the impact of rising interest rates.

Generating Returns

Now is a great time to get a buy-to-let mortgage if you’re willing to wait for the financial rewards to accrue over time. Investing in property is a long game – after all, property values in the UK still double on average every fifteen years, making now a fantastic time to secure properties that will produce a significant return on investment in the coming years.

With high stamp duty and legal costs, it is not as advisable or profitable to ‘flip’ properties in 2023. Anyone planning their next investment should be planning to hold on to their assets for at least five to ten years to get the very most out of it and to reap the rewards of market growth. For those still considering offloading assets due to rising interest rates, it is advised that you consult a tax expert before selling up – hefty capital gains tax could put you even more out of pocket, which could in-turn ruin your option of re-investing your revenue back into additional properties for further growth.

Overseas Investment

Looking to invest in UK property from overseas? There are still many mortgage products on the market to take advantage of. The UK market is historically a lot more stable than those in countries such as Hong Kong and the United Arab Emirates, making Britain a prime investment hotspot for prospective landlords from these countries. What’s more, with demand for rental property extremely hot at the moment, overseas investors can expect to generate high yields, with the Fleet Mortgage rental barometer indicating that 2023 has seen the highest yields on record across England and Wales – it seems that there is no better time to get investing!

A Perfect Time For Buy-to-let Investors

With high demand for rental property, the benefit of interest only mortgages, and exceptional rental yields across the country, there is no better time to purchase your next investment property with the help of a buy-to-let mortgage.

Whether you’re a seasoned investor, just starting your portfolio, or considering making the leap into the buy-to-let property market, At Home With Centrick has the tools to help you make the best choices to maximise the potential of your investment. That’s why we’ve curated all of our best knowledge and resources into the Earn At Home hub, which is full of advice pieces on bringing your property portfolio to life and navigating the rental market in your area. Looking for more tailored advice? Simply fill out the form below with any queries and a member of our dedicated investment team will be in touch with you shortly.