We all know the standard type of mortgage that helps us buy our new home, but only some of us know that investment property mortgages exist. A mortgage makes it easier for individuals or couples to buy the home they want and start a new life. However, only some seek to buy a property just for this reason. Property has been one of the safest market investments for many years.

Although there have been ups and downs regarding property prices, fluctuations are much more minor than in bonds and share prices or even crypto, which is one of the newest types of investments. Financial advisers suggest that property could and should be the foundation of a healthy, diversified investment portfolio.

This blog will scrutinise investment property mortgages and how you can benefit from them.

What is an investment mortgage?

In order to finance purchases of residential or commercial property, borrowers can take out loans for property investment. These loans operate somewhat differently than a mortgage on a primary residence.

A borrower's ability to repay a loan may be determined in part by the borrower's expected return on an investment in real estate. As a result of the higher risks involved, interest rates on loans for investments tend to be higher than those for primary residences.

How does an investment property mortgage work?

Which type of investment property are you interested in purchasing? Every investor has different goals, which means the right property type varies based on your specific ones.

It's important to remember that location is always a factor when investing in property, regardless of your investment. You'll likely see a return on your investment if your property is situated in a high-demand area. Businesses are attracted to prime commercial property, and tenants are drawn to desirable residential neighbourhoods.

Thinking about the property's potential return on investment (ROI) or profitability is important before making a purchase of investment real estate. ROI estimation can help you decide if a property is worth investing in. Here is the formula for calculating ROI: 

ROI = (gain on investment – cost of investment) / (cost of investment) 

Your loan options for a real estate investment property will vary depending on the type of property you're looking to purchase.

You, the investor, must decide which course of action is in your best interest. Check that the numbers add up in light of your long-term objectives before proceeding with financing.

Buy-to-Let investment mortgages

A Buy-To-Let mortgage is a mortgage for investment purposes. It's a mortgage loan made for people who intend to turn the property they purchase into an investment rental. You should know that deposits on rental properties are usually much larger than deposits on primary residences.

Due to their dual income streams, these have the potential to be lucrative investments. Rental income is something you can count on if you're a landlord. You can count on a regular flow of income from the property so long as you keep tenants there. The other is what's known as "capital appreciation," or the increase in value of the property over time.

If you're a Brit living abroad and hope to return to the UK one day, investing in a buy-to-let property could be a wise move. You'll be able to put the house up for rent and cover your living expenses while you wait for it to be fixed.

What types of property investment mortgages are there?

Several types of property investment mortgages are available in the market to match your investment goals. Property investment mortgages are split into Buy-To-Let (BTL) and Buy-To-Sell mortgages. You can review some of them below:

Overseas BTL mortgage: How many times have you dreamt of buying a new home overseas? You may want it for your own use, but wouldn't it be a better idea if you could rent it out? Renting out one or more overseas properties could be a worthy source of income with limited risk compared to other types of investments. 

Holiday Let mortgage: If you have a home near the seaside or in the city and you would like to benefit from it, this type of mortgage is the solution you need. A holiday-let mortgage is typically required when purchasing a home for the purpose of renting it out seasonally. Simply put, this is a loan secured by the entire value of a home that will be rented out in part.

House of Multiple Occupancy mortgage (HMO): There is no doubt that becoming a student comes with many expenses. One of these is the cost of student accommodation. Many of us have had to live with other students sharing a house during our university years. The growing number of students, both from the UK and abroad, has increased the need for accommodation. But it's not only about students; many workers from abroad search for a room to accommodate their housing needs in the first years of living in the UK.

Now that you are no longer a student, you can invest in a house and turn it into a roof for multiple tenants. The HMO mortgage is the loan that you will have to take to buy such a house. 

Commercial BTL mortgage: Commercial property is one of the best investment choices. Businesses grow, and as they grow, they need more space and storage in strategic positions around or inside cities. If you have done your research, perhaps you have found some investment opportunities related to commercial property. If you are ready to invest, a commercial BTL mortgage is what you need. 

Buy-to-Sell mortgage: Even though the property market requires thorough research, you might find some really worthy gems as you browse the property inventory. Not every property is new; in this case, a buy-to-sell mortgage would allow you to buy the property you want, renovate it and then sell it, making a significant profit. 

Am I eligible for an investment mortgage?

A rental property investment or a home-flipping endeavour is a high-stakes bet, but it could yield a substantial return. If you know where to go, you can find the funds you need to take advantage of an investment opportunity. Consider each borrowing choice's short-term and long-term costs and how they might affect the investment's bottom line as you weigh your borrowing options. 

The mortgage market may feel volatile now, but experienced economists suggest that it will improve in the next few months as the Bank of England and the UK government have vowed to stabilise the country's economy. Depending on their financial situation, property investors can seek mortgage advice from financial advisers who could let them know who would be the best mortgage lender for them, how much the monthly payments would be and, of course, explain any additional risks that they should take into consideration.   

Financial advice is imperative when it comes to mortgages, so don't neglect to seek some help that would ensure you have access to the best mortgage deals in the market. 

Refinance an investment property

If you have a rental property and a mortgage on it, you may be able to refinance into a lower interest rate if you have been making your mortgage payments for a while.

A year ago, mortgage rates were still historically low, which meant you could have been able to reduce your payment amount each month. Things have changed a lot during 2022 as central banks have hiked interest rates, making a Buy-To-Let mortgage more expensive than it used to be. Experienced investors prefer to contact fully qualified mortgage advisers who are always on hand and could give you access to mortgage providers that would simplify the mortgage process for you. 

As this is not going to be your primary residence, refinancing it won't be the same. Your financial institution could have stricter requirements, and you could be asked to provide additional paperwork.

Invest in property with Holborn Assets

Real estate has always been a reliable and popular investment choice. However, the best way to find the right buy-to-let investment for your situation is to speak to a property specialist.

Our team of experts offer a complete investment solution for those looking to add a property to their portfolio. In order to provide you with the best possible investment opportunities, we only partner with reputable builders.

Holborn Property Investments is part of the larger Holborn Assets group. For over 20 years, Holborn Assets has been one of the leading financial services companies trusted by clients across the globe.

For more information or to find out how we can help you, contact us using the form below.

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