If you’re looking for funds for your next property investment, there are a number of different financial products to choose from.
The most common type of loan for property investment is a mortgage. But there are also other products such as bridging loans or auction finance. Let’s take a look at some of the most popular funding options.
SHOP AROUND FOR THE RIGHT MORTGAGE
There are plenty of mortgage providers to choose from including well-known high street banks through to specialist lenders. It’s a case of researching the financial market to find which product is right for you.
Most buy-to-let mortgages are offered on an interest-only basis. Your monthly payments cover the interest on your mortgage, and the capital debt needs to be paid off at the end of the term. However, there are buy-to-let mortgages available on a repayment basis.
You’ll require a larger deposit for buy-to-let mortgages than you would for a residential mortgage. You’ll also have to factor in fees, a higher rate of interest, and the stamp duty incurred for any property that’s not your main home. Since April 2016, landlords pay an extra three percentage points of stamp duty on each band on a buy-to-let property.
The deposit required for a buy-to-let mortgage is also generally larger than would be required for a residential one. It’s often around 25% of the property’s value but could be as high as 40%. Obviously, higher upfront costs will lower your monthly payments and reduce the amount you’ll have to pay at the end of your mortgage term.
BRIDGING LOANS GET A PROJECT UP AND RUNNING
Bridging loans can help you to complete the purchase of one property before a sale goes through on another property. Essentially, it bridges the gap between the two, giving you short-term access to funds at a high rate of interest.
But, on top of the high interest rate, you can also incur administration fees for this type of loan. Despite this, a bridging loan can be useful to help you get a property investment project off the ground.
As well as bridging the gap between sale and completion dates, a bridging loan can help if you’re planning to quickly sell-on a house after refurbishment or want to buy a property at auction.
Some property investors have used bridging loans to buy land with planning permission. The loan gives them the funds to complete building work. The loan is then paid off following the sale of the property or by switching to a longer-term mortgage. Alternatively, you could purchase land that requires planning permission and then sell off the site once relevant permissions for development have been obtained and pay off the loan that way.
AUCTION FINANCE OFFERS FAST CASH
Auction finance is offered by specialist lenders to auction buyers. Essentially, it’s short-term finance that’s made available quickly to help with the tight timescales faced when purchasing at auction.
As the loan is generally secured against the property being purchased or other property assets, it can be arranged fast. Auction finance companies can be highly flexible regarding the types of property and circumstances of your purchase.
Once auction finance has been arranged, you know exactly how much you can bid on a property. Auction finance companies will lend to individuals, limited companies, limited liability partnerships, sole traders, and partnerships.
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