How Much Bank Financing Do You Need to Invest in Property?
Trying to figure out just how much bank financing you will need to invest in property will depend on quite a number of things. For starters, it will depend on the size and price of the property in which you want to invest. Then it will depend on what type of lenders you approach and how qualified you are for their available mortgages.
A great deal of this though depends on how lenders view property investment today. Ever since that real estate crisis that gripped the world a few years back, lenders have become a bit more vigilant and strict as to how they give out loans.
But say for example that you qualify for a mortgage, the next question would be just how much financing do you need?
Deposit levels and loan-to-value ratios
Most lenders now require you to have at least 20% of the entire amount as deposit. In fact, that figure generally hovers between 20-40% depending on who you approach and just how risky you are as a borrower in their point of view.
In many cases, buying a property as your home, the loan-to-value ratio can go as high as 95%. Which means you will only need to have a 5% deposit available for the lenders to offer you the rest of the money you need.
Buy-to-let properties, on the other hand, will require a higher level of deposit for obvious reasons. Because they tend to be a riskier proposition, most lenders will require you to put down anything between 15-25%.
What about the interest rates?
Typically speaking, the higher the amount of deposit required by a lender, the higher the number of mortgage products available for you to choose from – and you will find that the interest rates will also be friendlier.
Mortgage interest rates depend on the level set by the Bank of England. That, however, does not mean that you will automatically find interest rate friendly mortgages if the Bank of England sets a low bank rate. A great number of lenders tend to play around with these rates and only those who really want the business from property investors will set a friendly rate. The more the lender is interested in attracting your kind of business, the lower their interest rates will be.
So how much can you borrow?
When it comes to financing a buy-to-let piece of property, lenders tend to look at how viable the property is from a ‘rental-income’ point of view. They look at how comfortably the monthly income can finance the mortgage repayments. The ideal figure would be at least 115 – 125% of the repayment amount. So, say if the property had the potential to bring in about £750 every month, then you can get financing that will require a £600 monthly repayment.
What you need to know is that it is all about the kind of property you want to invest in, the kind of lender you approach and how risky you are as a borrower.
For additional tips on how to deal with banks, Here is a nice video from Rick Otton discussing the matter: