Dealing with many different mortgage types on a day to day level, more often than not I am quizzed by clients with Buy to Let mortgages on how best they can maximise their incomes. In my view some of the best rental yields – and therefore by default, properties for investment – are Homes of Multiple Occupancy (HMO’s) or Student lets. In addition to these, in some cases even properties which are holiday lets can provide good returns.
As an example, let us compare two identically priced properties, assuming we can get them for £200,000 with a £50,000 down payment.
A 1 bedroom flat in Bristol, at the current market value, will be somewhere in the region of £200,000. A £150,0000 mortgage on this will likely mean a mortgage of 1.83%. £995 fee with an interest only payment of £230. These would typically let for around £10,800pa. Invariably when letting a property a service charge to a letting agent will need to be taken into account. In this case that is approximately £1,500pa. Therefore the rental yield produces a gross profit of £9,300.
A 5 bed house in Plymouth, which is currently being let to students, has a value of £200,000 with a mortgage of £150,000 (with a £50,000 down payment), meaning a mortgage of 2.69%, having fees of £2,250 and a payment of £341. The present agent confirmed the property currently has a guaranteed rental income of £17,000 gross per annum, with bills (utilities etc.) with service charges coming in around £4,000 per annum, returning a gross profit of £13,000.
There are however risks when obtaining a mortgage for a HMO to students or professionals – as there are when buying a leasehold flat for general renting as well, and this is when it is best to discuss all the available options with a dedicated mortgage adviser such as myself. What is clear to see is that for the same down payment of circa £50,000 you can achieve an ongoing profit difference of around £4,000, which over the life time of a 25 year mortgage is crudely going to work out close to £100,000!
If you are looking for a Buy to Let mortgage, or even searching for a better rate or deal than your existing one, then please do get in contact. We are Buy to Let mortgage specialists with whole of market access and can provide you with a mortgage recommendation within 2 hours. Best of all we are completely fee free.
Mortgage and Protection Adviser