How to maximise your mortgage funds

Independent professionals have faced many challenges since the pandemic and now that the UK is heading out of its first national lockdown and making the transition into the new ‘normal’, many might be wondering what comes next.

Row of houses

Perhaps you are planning your next investment opportunity or looking to raise funds for a side project. Carrying out the necessary research and creating a plan can help prepare you for any obstacles you may encounter along the way and increase your chances for success.

What are the options available for the self-employed sector in today’s housing market?

A Guide to Buy-to-Let Mortgages

Considering expanding your property portfolio? Unsurprisingly, a Buy-to-Let investment is something that interests many independent professionals – and for good reason. According to the ONS, private rental prices rose by 1.3% in England, by 1.5% in Wales and by 1.0% in Scotland between March 2020–March 2021. Purchasing a buy-to-let property can help provide you with a passive income alongside your main source of income, however, there are many factors to consider before becoming a landlord.

What is a Buy-to-Let?

A Buy-to-Let (BTL) mortgage is a mortgage specifically designed for people who buy property as an investment, with the intention to let their property out to tenants. Although it is usually more expensive than regular mortgages, a buy-to-let property can be the ideal way for a self-employed professional to boost their income.

What is the difference between a Buy-to-Let and a residential mortgage?

If you are an existing homeowner, you might be familiar with the costs involved with buying a property. The fees for a Buy-to-Let mortgage are likely to be higher than the costs for a residential property, however, most Buy-to-Let mortgages are interest only, meaning you can buy property as an investment without needing to save up the full amount to buy it outright.

Here is a breakdown of the funds you will need to secure before applying:

  • Deposit: many lenders will require a 25% deposit or more
  • Surveyors’ fees: this will give you an idea of just how much you might need to invest in a property after you buy it
  • Stamp duty: the rates for landlords and anyone buying a second home is 3% of the property up to £500,000, then 8% (properties £500,001 - £925,000), 13% (properties £925,001 - £1.5m) and 15% over £1.5m

What are the other costs are associated with maintaining the property to consider?

  • letting agent fees

  • mortgage repayments

  • income tax
  • landlord insurance
  • furnishing the property and redecorating (if you so choose)
  • smoke and carbon monoxide alarms
  • Energy Performance Certificates
  • Gas Safety Certificates

Remortgaging: what are the benefits?

If you are a homeowner, you will probably already be familiar with the term ‘remortgage’, but might not fully understand the process or whether you are eligible. Put simply, by remortgaging you are able to take out a new mortgage on a property you already own – to replace your existing mortgage or borrow money against your property.

You could potentially save £1000s

Did you know that you could potentially save £1000s by remortgaging? If you currently have a mortgage on your home, you may not be getting the best deal. In most cases, this applies to you if you are nearing the end of your deal, or you have been using the same lender for years.

This is because the most common mortgage deals are fixed rates lasting two to five years, that allow you to repay the same amount on a monthly basis. Therefore, once the introductory rate comes to an end (and you do not remortgage), you will automatically be enrolled onto your lender’s Standard Variable Rate (SVR).

For most people, having a mortgage is their biggest financial commitment, therefore it’s important to highlight the benefits of undertaking thorough research before you commit. As a self-employed professional, you will have worked hard to build your business and make your passion a success. Your mortgage is no exception – it should also work hard for you.

Today, the Bank of England Base Rate is at a historic low (0.10%) meaning now could be an ideal time to think about remortgaging to a better rate. UK homeowners are currently wasting £4,500 a year on unfavourable Standard Variable Rates, as reported by the Evening Standard. Although, it is a good idea to keep a regular eye out for more competitive mortgage rates, there are prime times you might want to consider reviewing your mortgage rate.

Your mortgage is due for renewal

If your mortgage is due for renewal, you will automatically be moved to a Standard Variable Rate (SVR) at the end of your current deal which is likely going to be higher than the deal you were previously on. Although you should receive a notification of this from your lender a few months before your fixed-rate mortgage ends and be offered another one – keeping track of this and setting a reminder around 3 months before will give you an indication of the current rates available and increase your chances of saving on future repayments by finding a more competitive deal.

Raise money from the value of your home

Remortgaging to release equity is a good way to raise additional funds for any big purchases you may have planned. This enables you to release funds from the value of your home by increasing the mortgage loan and accessing the lump sum for anything you have your sights set on. Some ideas to get you started are listed below:

  • consolidate debts and make them easier to manage

  • Home refurbishments: decorate your home office, new kitchen and any other general upkeep (this could also add value to your property)
  • car or other motor purchase
  • wedding or special occasion
  • pay the deposit on a second home or buy-to-let property

Has your house value increased?

If, like many homeowners, you took on a new home renovation project during lockdown, the value of your home may have gone up.

Findings from mortgage comparison site money.co.uk show that UK homeowners have spent £55 billion perfecting their home during the first national lockdown in 2020. With house prices rising at a rapid rate, your house might be worth much more than it was when you set your current mortgage deal - meaning your Loan to Value (LTV) ratio may have decreased.

Whilst you should consider exit fees before switching, the associated savings with a new mortgage rate could make accounting for paying the early exit fees an option. 

Speak to an expert

Our partner CMME are experts in providing mortgage advice for independent professionals like you, with access to some of the most competitive rates on the market. Speak to one of their experts by filling out this short form and arrange a free no obligation chat about your mortgage plans.

Your property may be repossessed if you do not keep up repayments on your mortgage.

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IPSE Partner, CMME, is a leading Contractor Mortgage specialist, dedicated to supporting Britain’s freelancers, contractors and self-employed professionals – ambitious, enterprising people like you who’ve backed themselves to make their own way in life.

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