Recently we had a case complete with Precise Mortgages for a Buy-to-let (BTL) in Leicester on a property valued at £195,000. The client required a loan of £136,500 to complete the purchase and decided to do this with an interest only facility to keep their monthly repayments down.
In the case of interest only mortgages, you will still be charged monthly payments by your lender, but these payments will only cover the interest charged to your facility. This means that your payments will not reduce the size of the loan – they will just pay off the interest as it accrues. The interest is charged to prevent the loan sum from growing any bigger, as without them your debt to the lender would begin to balloon over time as it accumulated interest.
If you do choose to purchase a property with an interest only mortgage, at the end of the term you will have a few options as to how you wish to proceed. The first option is to re-mortgage, which would see you shifting onto another facility, maintaining your current situation. This is unless you decide to switch to a mortgage with loan repayments, which would see you steadily paying off your debt over time in the traditional way.
You can also opt to purchase the property outright, using cash to take full ownership of the property. Alternatively, if the value of the property has increased because of market changes and increased demand for housing, be that local or national, you can sell it on and potentially make money from the increased value and price point. This final option is one taken by some portfolio landlords, usually opting to free up equity and move on to more attractive or profitable investment opportunities.
The outcome of this property is uncertain, as the client has only just started making payments on their interest only mortgage and so the decision to buy, sell or remortgage is a long way away. However, it is entirely possible that because of the location chosen they may in the future decide to sell up and use the money to invest in another area, where there is a higher potential for return.
In the end this case generated £1,314.00 in total commissions, made up of the £495 broker fee and the £819.00 procuration fee.