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Buy-to-let market ‘slowly opening up’

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The buy-to-let market is starting to open up, with more borrowers now able to access finance.

Mark Dyason of mortgage brokers Edinburgh Mortgage Advice said people with smaller deposits were now able to buy a property to rent.

He told Your Mortgage those with a 15% deposit were able to access finance, despite limited competition. Dyason also warned that many lenders require a minimum income.

“The market is slowly opening up again and while it is possible to see deposits needed as low as 15% or 20% there are only a few lenders in this market place, there is a significant step down in rate and fee when you get to a 25% deposit as the lender competition ramps up,” he said.

“On personal income lenders like to see a level that means investors can carry the odd month here and there where a property might be empty (void periods) or where repairs are needed and this level is often £25,000 per year, although there are some lenders (including the two largest) with no minimum income requirement, especially for experienced landlords.”

Buy-to-let borrowers are still able to access interest-only deals, but must be aware than there are further criteria buyers must meet.

“Unlike the residential market where interest-only is near enough extinct, in buy to let it is still common for a number of reasons although for most commonly it is for profit and cashflow,” he said.

“That doesn’t mean repayment is wrong, but it is worth getting advice and will depend on what your long term goal for the property is.

“Lenders use nominal rates of payments to stress test rental yields, these are mostly between 5-6% and the monthly rental must be 125% of what an interest only payment would have been if the rate is at this level. If these tests cap the loan you are looking for there are lenders that use the charging rate of the loan and these can squeeze a slightly larger loan out for clients.”

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