There are ample investment opportunities available for those that still see the property market as a good long term option. Although some predict that property values will not grow over the coming years, the returns from letting have increased due to the demand from consumers unable to afford the deposits necessary to raise a mortgage for an outright buy.And this is predominantly where the challenge lies.
Mortgage companies are still licking their wounds over the losses made during the recent financial markets crisis and ongoing recession. Property values have stalled and lending practices have returned to conservative levels to avoid further loss potential.
That means lenders are typically looking for at last a 10% deposit before even considering a mortgage application.
With average home values still in the £160,000 range that means gathering a deposit of at least £16,000. In reality most first time buyers are looking for homes in the £100,000 to £125,000 range but even that means a substantial five figure deposit is required to secure a mortgage.
So demand for rental has increased sending rental values up for desirable properties and locations. As an alternative way of getting a return for an asset that may appreciate over the longer term, buy to let is back in fashion for those that are cash rich and/or can support a mortgage payment matching lenders requirements.
Most buy to let mortgage providers are looking for a deposit in excess of 20% of the value of the property. At this level it is possible to get a three year fixed rate mortgage of around 5.5% APR.
Although there are a range of offers available, many providers charge valuation and/or administration fees so a careful review of any offer is required to find the best deal. As rates are fixed there are also heavy exit penalties should the mortgage be redeemed within the fixed period.
Generally speaking, the bigger the deposit offered the better the lending terms on offer. For those able to raise a 65% deposit a current lending rate of less than 4% APR is achievable with no redemption penalties. This is offered on a variable rate basis so mortgage payments will increase if market rates rise.
Those seeking certainty of mortgage payment should opt for the longer fixed rate periods. Currently, 5 year fixed is one of the longest terms on offer to buy to let purchasers with a rate approaching 5.5% APR.
With the continued dire state of the economy it is likely that market rates will remain at current levels for some time to come so only consider this option if your view on long term rates makes this a viable option.
So if considering a buy to let purchase it can pay to raise as big a deposit as possible to get the optimal terms for any mortgage borrowing. It may even be sensible to take out a short term loan or use a credit card to raise those extra pounds to top up any savings.
Look carefully at any credit card deals that give interest free periods and extra benefits before borrowing. Make a Credit card comparison at Moneysupermarket to see what options are currently available and weigh the value of those extra pounds of deposit against the short term ability to pay off the card debt.