If TV adverts were to be believed, all you need to do to get a great deal on anything is to go compare the market at any one of a number of various online sites. It’s questionable whether only using a price-comparison site will actually give you the best deal on any financial product and when dealing with a product as significant as a mortgage it really can pay to get professional help from a mortgage broker. Here’s why.
A mortgage broker is on your side
Banks and lenders want your money. It really is that simple. The onus is on you to do your research and apply for the best product with the best lender, all the lender wants to know is whether or not you are a suitable customer. Because most people only buy a house a few times in their lives, they are unlikely to have the same level of familiarity with mortgages as the professionals do. Even if they understand the basic principles on which they operate, such as the difference between a repayment mortgage and an interest-only mortgage, it may be far too much of a challenge for them to look at all the different options available (even if they actually know of them) and work out what is most appropriate for their situation, so that they can then approach the right lender in the right way to secure the best deal. A mortgage broker is someone whose day-to-day job involves dealing with the ins and outs of the mortgage market and who is therefore in a good position to understand your situation and guide you through the maze.
Mortgage brokers know the niche players as well as the major names
If you were asked to sit down and put together a list of mortgage lenders, it’s a fair bet that most people would be able to name the major High Street banks and perhaps a few others as well. In reality, however, there are a number of niche players in the mortgage market, who are far more likely to be known to a professional mortgage broker than to the average person looking for a mortgage. Sometimes these will be companies who have a strong base in a particular geographical area but will take customers from elsewhere. At other times, they will be companies who are prepared to take on unusual properties, such as timber houses or who are more open to customers in unusual situations, such as those recently arrived from overseas or the self-employed.
Using a mortgage broker can actually work out cheaper than getting the same product direct
Here’s a little secret, which might already be known to people in certain industries such as travel. Headline prices can be open to negotiation. Advertised prices are often what the seller would like to get rather than the lowest price they’re prepared to accept. Negotiation is a skill and part of the skill involves knowing the market and what other people are doing, which is part of the reason why a mortgage broker is often in a better position to negotiate on behalf of clients than clients are for themselves. Another part of the reason is that mortgage brokers build up solid professional relationships with people who work for mortgage lenders and even in these days of computers, that can be very helpful. Finally, headline prices are set at a level which allows the seller to pay commission and/or offer discounts and still make a profit. A mortgage lender may well offer to forego some of their commission so the end client can get a better rate.
The Basics of Buy to Let
Anyone who’s been researching buy to let will probably have heard that buy-to-let landlords have been on the receiving end of two hefty tax stings recently. The first is the introduction of a 3% surcharge on the stamp duty paid on the purchases of second and subsequent homes. The second is a recalculation of how rental income is calculated combined with a change which fixes the tax relief granted on mortgages at 20% as opposed to the mortgage-holder’s rate of income tax. Notwithstanding this, the dynamics of the UK property market (otherwise known as a case study in the laws of supply and demand) ensure that buy-to-let still has a level of attraction. Here are three points which potential landlords need to consider.
Are you sure the figures stack up?
There are basically two kinds of investments, growth investments and yield investments. Buy-to-let is essentially a yield investment because you can only benefit from any increase in house prices if you actually sell the property, in which case you cease to be able to let it out. Therefore, to see if BTL makes sense as an investment, you need to understand, realistically, what sort of return you could expect after all expenses are taken into account and see how that compares to your other options for investing the same money. Given that BTL is a somewhat politically-contentious area at the moment, you may wish to leave yourself a reasonable margin or error and/or of safety for future changes.
Can you actually manage being a landlord?
Being a landlord is very different from taking board money from your children. Leaving aside the practicalities of managing a property and the need to deal with tenants, landlords have a number of legal obligations from ensuring that the property is safe to live in to ensuring that the tenants have the “Right to Rent” in the UK. This scheme only applies in England at the moment, but is (officially) due to be rolled out across the UK. It basically obligates landlords to check the immigration status of their (potential) tenants and failure to conduct adequate checks can be punished by up to 5 years in jail. Using a letting agent transfers the responsibility for the checks onto the agent, but, of course, this increases costs, which brings us back to the question of whether or not the numbers stack up.
Are you able to recognise a good investment property and a good tenant?
There are basically three components to buy to let - the landlord, the property and the tenant (letting agents work on behalf of the landlord). As a landlord, you not only need to choose a suitable investment property (which is different to buying a house for yourself) but also to pick suitable tenants. These last two points can make a significant difference to your success (for which read level of profitability) and they are closely related. The more attractive your property is to tenants, the greater your options for weeding out tenants who may cause problems and focusing on ones who will look after the property and pay their rent on time. Making your property attractive to potential tenants requires understanding your market, i.e. who your potential tenants are and hence what they want. For example, the “young adult” market includes students, young workers and young professionals. Affordability is likely to be a factor for all of them, but people who are earning an income may be prepared to spend a bit more for a place they like and the higher their income level the more they may be able and willing to spend. In other words, different market segments can be equally profitable but noticeably different in how they work. Lettings agents may be able to advise on what market(s) to target and how, but again, using a lettings agent comes at a cost, which leads back into the question of whether or not the numbers add up.
Your home may be repossessed if you do not keep up repayments on your mortgage.