A Guide to Investing In Your First Investment Property, A Guest Blog by Harvey Bowes
Congratulations! If you are reading this, you are keen to explore how property can work for you and how you can make a start! So, if this will be your first investment purchase or your first look into the possibilities, let’s try to guide you along the way!
There are two things to consider when it comes to property. First of all, what type of property are you looking to invest in? And second, how will you finance your investment? So let’s start by taking a closer look at the funding side.
Deposits
Currently, most lenders will offer you up to 80% loan to value (LTV) against the property. This means that you can borrow up to 80% towards the value of your purchase. You will provide the rest by way of the deposit. Now, where does this money come from if you need between 20-25% towards the property purchase?
If you are buying the property in cash, you will not need to worry about this. However, if you are looking to buy with a mortgage, this could be important.
Using your savings or an existing residential mortgage
As the banks do not give you a great return on your money these days, putting your hard-earned savings into property could be really beneficial and potentially give you a great return. If savings are not strong enough to provide the entire deposit, you could use your own home!
Residential mortgages are based on your income and affordability. If this stacks up with your mortgage lender, you could use a further advance against your property to provide the deposit. This is where the lender will grant you an additional loan alongside your mortgage. So essentially, you are cashing in some of the equity you have on your own home and using that.
If affordability is tight, then you could seek a second-charge mortgage. This is another lender taking a ‘second interest’ in your property alongside your regular mortgage lender. They may allow you to take out a lot more money against your home, but interest rates may equally be a touch higher as a result, but this is all relative to the amount that you are borrowing.
This is where employing the expertise of a good mortgage broker can save you a lot of hassle and open up opportunities to make this line of funding work for you. They can also advise what the banks will see as affordable and the most that you could borrow. Remember, one of the significant factors regarding this will be your approach to risk, which is paramount to ensure that you make things work for you and not overreaching yourself.
So, that’s your deposit now taken care of. But are you limited on property type?
Property Types
Some people want to go all-in and buy many properties or scale up a portfolio quickly in a short time. Others may wish to specialise in properties such as HMO’s and multi-unit freehold blocks (flats).
Being a first-time investor does not mean that you only have one perspective. With lenders now being a lot more flexible, you have the option to invest in specialist property types, even as your first.
Investing in HMO’s as a first-time investor
Supposing that you are reading this now as a first-time investor, but you are keen to explore purchasing an HMO, can you get finance?
Luckily, the answer is yes! A lender like Kent Reliance can get you up to an 80% loan to value on that HMO purchase if you own a home. Rates will be a little over 4%, but the income from an HMO will mean that the loan will stack. Now, the bonus here is that later down the line, you could also take out a further advance on this property and recycle some of your deposit towards the next property.
So, there are many factors to bear in mind and many things to consider, but finding a good broker that will work with you to achieve your property goals can work wonders. Build a relationship with them, get a feel for how they work, and ensure that you feel comfortable with their approach to exploring finance for you. Of course, this means that you will always have access to the best rates, but more importantly, access to suitable lenders will pave the way for your portfolio to be built!
—
If you want any help with ways to finance your property or insights into some of the creative strategies used by successful investors, reach out to us on 029 2175 4150 or find us at HarveyBowes.com.
