This refers to property ownership for anything other than self-occupation. This enables you to build a comprehensive property portfolio to, for example, save for retirement or provide ongoing income for your family. Typically, finance is available up to 80% of the property value with interest-only options available, and lenders tend to look for a minimum 125% coverage of the repayments by rent at a stressed base rate of 3.5%.
Six things to think about when considering investment/portfolio finance
Drawing up a forecast will help you to calculate this. No matter how large or small, a project benefits from having a clear financial plan. The primary figures are:
If you are looking to secure finance to help with your property purchase, you will be hoping for a Decision In Principle (DIP) -sometimes known as a 'mortgage promise'. To get a DIP, you will need to demonstrate that you can afford the basics and that you have a clear plan of how to turn your investment into a profit.
2.Are you trading under the correct banner?
Personal Liability and tax treatment differ between Limited Companies and Partnerships or sole traders, which can have an impact on the security of your finance. Even if you feel like your finance has the correct status, it is worth checking with an accountant or broker to ensure that you are trading under the correct banner.
With great power comes great responsibility, and this is reflected in today’s management charges. These place complex legal responsibilities upon landlords, which include disclosure of information to clients. The government has issued guidelines, and it is important to get advice about these before venturing into your investment finance.
Whether or not you pay interest-only or Capital, repayments will affect both your short-term and long-term financial planning. Interest-only repayments are often popular with investors who are growing a portfolio. However, for this strategy to work, there needs to be an exit plan in place. Speak with your financial adviser about the best repayment option for you.
5.Impact of Brexit
The Royal Institution of Chartered Surveyors (RICS) is cautioning that Brexit has caused uncertainties in the property market. These include falling prices, as well as longer durations for the completion of property sales. As of the close of 2018, the average duration is nineteen weeks –a record breaking length. It is also important to note that this is a geographical ripple effect that is spreading outwards from London, and is particularly affecting the Capital, the south-east, and East Anglia. Political forces are always a fairly wide and unpredictable variable in property markets, and when Brexit settles,the property market is likely to calm. However, when considering an investment property, it is worth looking at the broader picture when making your calculations.
This is a detail that can often be overlooked in the excitement of starting a new property journey. Property investors are often unaware that loved ones are likely to be plunged into the mortgage application process unless the paperwork is taken care of in advance. Life insurance can be used to effortlessly pay off mortgages or inheritance tax, but only when it is set up correctly. Speak to your broker about how to avoid unnecessary inheritance tax bills.
We’re here to help
In this industry, experience matters and "the devil is in the detail”. What we at BFS (UK) Limited seek to do, with our numerous years of experience, is pre-empt to ensure that you are not embarking on an expensive project. One that is doomed to failure due to an issue that should have been glaring from the outset.
Our experience is drawn from many different financial disciplines, from strategic economics to property law. This means that we have a rounded and informed approach that is grounded in decades of experience.
Want to know more?
Contact us today to talk to one of our property finance experts