The Property Investor’s Guide is back and due to popular request, we are going to shed some light on payment structures and deposits when investing property. It is important to firstly consider that there is no universally set payment structure for investing in property, as this can vary due to the type of development, the location, if you are a residential buyer, or if you would like to invest in student accommodation. Therefore, we have listed below the typical payment structures and deposits based on some of our latest developments.
Buy to Let Payment Structure & Deposit
There is no set or typical Buy to Let payment structure, as this is often highly dependant on the developer and the structure that they set in place. Deposits can typically be in the field of 10%-50%, depending on the developer and how close the property is to its completion. In most cases, lenders will offer around 75% LTV for buy-to-let, although we do tend to err on the side of caution and suggest around 30% deposit and therefore a 70% LTV for the mortgage. Remember, BTL mortgages are typically interest only. Although, there are repayment options too, but these are obviously more expensive and will in turn limit the amount you can borrow, given that the gap required between rental income and mortgage payments should be between 25%-30% lower.
As aforementioned, most landlords choose interest only, as the interest on the payment is tax deductible (and obviously landlords are looking to generate income only and maximise the funds they have). When the term of the mortgage is over, the landlord will either re-finance or sell the property and take any uplift (if there is any), and as a result will be subject to capital gains tax.
Purpose-Built Student Accommodation Payment Structure & Deposit
Most PBSA property is non-mortgageable given both the size of a typical apartment and the sector it is involved in. That’s the generalisation you make when looking at PBSA as most mainstream lenders baulk at lending to this sector. However, there are lenders that will, this includes the latest pier-to-pier lenders that have entered the markets in the last few years, but generally these are few and far between and as such you must consider that when you come to sell this property on, the potential buyer will probably have to be a cash buyer in order for you to exit easily.
Residential Payment Structure & Deposit
In terms of the payment structure and deposit for a residential development, this is far more straightforward. The two main protagonists being the classic repayment mortgage, or again interest only, although you will have to have a method of repaying the capital lent when the term finishes in place before a mortgage lender will advance you the money on the latter product. Also, as a residential purchase the amount lent on a LTV basis will be higher than that of a buy-to-let mortgage. Typically a minimum of 10% is required for a deposit, although certain companies do offer a mortgage on a lesser deposit, but typically 10% represents the cut-off point.
The last thing to remember with off-plan property is that any lender will have to offer a mortgage in principal only as the structure will not be in place and therefore there is nothing for the valuers to value. Again this is normal for this sector, but solicitors always get nervous when a client exchanges with a mortgage in principal only, but this in most cases is the only way to proceed, which is why off-plan in the past has been the area of the market where investors lurk and residential buyers who require a mortgage are less prevalent. Only when a development is nearing completion do residential buyers come to the fore.
If you are thinking about purchasing your first residential property, or you are an investor looking for a spectacular development with high rental yields, contact our award-winning property team today for helpful advice and a solution that is tailored to your needs.