Why is it so difficult to invest in real estate in the United Kingdom?
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November 25, 2019
Typical mistakes made by inexperienced landlords and investors
November 29, 2019You have money to invest and want to buy property in the United Kingdom.
A very good idea. But we want to get a standard buy-to-let mortgage. You may think there is nothing easier than that as you have a standard 25% deposit. You cannot be more wrong! Over the last few years buy-to-let mortgages became more and more tricky due to regulations and the lenders criteria.
Let’s focus on why you may not get a mortgage purchase
- Your income. Yes, your income is relevant for buy-to-let mortgage. Usually, you need at least £25k annual income or even higher if you are a portfolio landlord (owning 5 properties or more). The income has to be non-rent or capital raise related and for the typical landlord, it is often impossible to meet that requirement as their job is to manage the properties!
- Portfolio landlord. Yes owning 5 properties even for very low prices in North England makes you portfolio landlord. It may sound posh but in reality, is yet another problem. The lender now assesses all of your portfolio for Loan to Value and rental yield. Even if you have one property with no rental (you may simply be selling or refurbishing it) you potentially not be granted a mortgage for a property you are buying even if it is a perfectly sound investment!
- Rental income stress rate. It sounds very tricky and it is even worse. Nowadays it is not just Loan To Value being calculated but also rental income. And you may have a mortgage payment of let’s say £400 and rent of £1,000 but the bank still says it is not affordable to have a 75% LTV mortgage. It is down to their calculation of mortgage payments based on worst case scenarios... A very big problem in all properties above £200k and even bigger even you are a higher-income taxpayer.
- Lower valuation. It is a fact. If a family buying a property to live in the valuation pretty much always is fine. Try to buy the same property to let and then the valuation can be 10% lower especially for a remortgage. That way lenders actually lower their risk. It is the same with rent which usually valued lower then a market rent even if you can prove that property is currently let for an amount exceeding that amount.
- Are you getting paid cash for your rent? Well, cash it is a legal tender in the UK but apparently, banks don’t see it that way. If it is cash payment then often it doesn’t exist for banks and guess what happens with your application then.
- Deposit. Can you prove the source of your deposit? We hope you do as it may be declined if you cannot prove it.
And above are only issues with a mortgage. There are plenty more...
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