Getting a brand-new property for a buy-to-let investment may be a more appealing prospect for some people than an existing property.
There are several advantages to a newly-built buy-to-let, such as not having to worry about immediately renovating or refurbishing it.
Newly-built buy-to-lets are perceived to carry a higher risk than a standard property, which can lead to landlords having different mortgage strategies. As such, choosing a new property as your buy-to-let can be a daunting prospect, particularly if you are new to such mortgages.
So, let’s look at how new build buy-to-let mortgages work and see what goes into the process of getting one.
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The Possibilities Of Getting A Newly-Built Buy-To-Let
Despite being a popular investment option, newly-built buy-to-lets can be difficult to find, particularly due to their perceived risk. These risks are as follows:
- Newer properties tend to have a higher market value, which may depreciate over time.
- A lot of new build properties will be sold as a shell and additional payments must be made for things like flooring, tiling, turf in the garden, appliances etc. This could mean additional costs on top of your deposit to purchase the property.
And since older properties are considered safer for investment, the likelihood of finding a newer build is generally lower. As such, expect your details to be examined thoroughly while looking into new build buy-to-lets.
The same applies to newly built flats, with a chance that finding such mortgages can be even more difficult. New build flats have more stringent conditions attached to them, which make matters more complicated.
Here are some of the perceived risks for a new build buy-to-let flat:
- Most flats are leasehold, the terms of which may dictate stricter conditions for flat usage
- Rent and service charges sometimes apply to flats which can be costly
- Flat location may be a point of contention, such as those located in commercial areas
- Flat maintenance charges can also add additional costs
Eligibility Requirements
Lenders will look into the case as a whole, including the property to be mortgaged when assessing a mortgage application. You can expect them to look for four primary factors and several secondary ones, which can vary from one lender to the next.
The primary eligibility requirements include rental income, other income, experience as a landlord and your credit history.
As a borrower, you will need to provide the lender with data on the expected rental income for the property. Typically, lenders require your rental income to be 125% of the mortgage payments. This amount can vary based on the market and your circumstances so expect some fluctuations in this depending on a few factors.
Next, you must declare any income that you make from other sources to alleviate any concerns with mortgage repayments. This lets the lender know that you will be able to make repayments should you not be able to find a tenant for the property.
Being an experienced landlord can also make it more likely to find a new build buy-to-let successfully. Having a portfolio of other buy-to-lets can further add to this likelihood.
And lastly, your credit history will be taken into account so having a strong credit score will make it more likely you’ll receive a positive outcome of your mortgage application. While it is possible to get a property on bad credit, it’s generally advisable to maintain a good credit score. A bad credit score makes can make it more difficult to get a mortgage and usually attracts a higher interest rate, especially with Buy to let Mortgages.
Some lenders look for secondary factors for the property, which may include the following:
- Certain lenders are averse to the idea of lending flats higher than the fourth or fifth floor
- Lenders may require lift access to flats in high-rise buildings
- Flats above commercial premises may not be in consideration at all
- Lenders may require ground rent and service charges not to increase
- They may also specify that the lease should have no unfair financial penalties
Deposits
In comparison to a standard buy-to-let, a new build can require a higher deposit due to the associated risk. The deposit amount can range anywhere from 25% of the property value to as high as 40%, depending on the lender.
This amount fluctuates based on the eligibility criteria listed above. You will have to pay less upfront, should you meet most or all of the requirements.
At the end of the day, the deposit amount will depend more on the lender than your application. With a lender who is not as strict, even new landlords can pay a reasonable amount as a deposit for the new build buy-to-let.
The Advantages And Disadvantages Of New Build Buy-To-Lets
There are several advantages and disadvantages associated with new build buy-to-lets, knowing which can help you decide whether the investment is worth it or not.
Listed below are the advantages of getting a new build buy-to-let property:
- Lower maintenance requirements during the early years post-purchase
- Lower energy costs during the early years
- New properties are chain-free, which may speed up the process of purchasing the property
- Newly furnished properties can be attractive to tenants
- Purchase incentives from property builders can help make them more affordable
There are certain drawbacks to this too, which include the following:
- Newer buildings can have flaws that may have been overlooked during construction
- May result in larger monthly repayments due to service charges and ground rent (depending on the property), causing a lowered rent-to-repayment ratio.
**A buy to let mortgage will be secured against your property.
Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
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