We recently sat down with Charlotte Story from Invoke Finance to chat about common mortgage questions and get some more in-depth answers to them from someone who has over 15 years in the finance industry.
Key Questions Answered:
- What’s the difference between capital repayment and interest-only?
- As an investor should I look towards the interest-only option or the repayment option?
- What kind of rates are you and your investors getting at the current moment?
- What are the factors that determine the rates?
- Should I buy personally or should I buy through a limited company?
- What role does the mortgage broker play nowadays?
Stuart Williams: Hi guys. It’s Stuart Williams here from Thirlmere Deacon. Another episode from us on meeting the experts, meeting the guys in the industry. I’m actually sat here with Charlotte Story, the Director of Invoke Finance, an independent mortgage broker, based up in St Albans. Charlotte, say hello.
Charlotte Story: Hi Stuart. Hi everyone. So my company’s Invoke Finance, and I’m an independent mortgage broker. I’ve got 15 years of experience in working in finance, but just the last six years on mortgages only. I deal with a whole range of clients. So it could be a first time buyer, a next time buyer, or a property investor. And I have access to over about 120 different vendors.
SW: Superb. Well what we do here is, as you know, we concentrate mainly on investors and buy-to-let. And what I wanted to put out today was just a few very, very basic mortgage questions that not everybody knows, the frequently asked questions that not everybody knows the answers to. So if you’ll indulge me, first one would be what’s the difference between capital repayment and interest only?
CS: Surprisingly, I do get asked this question quite a lot, even though it’s so simple. So interest only does mean, quite frankly, that you are just paying the interest on that mortgage. So at the end of the term of the mortgage, the actual capital balance will remain, because you’ve only paid the interest. If you take a capital repayment mortgage, it means that you’re paying both the capital and the interest, and at the end of the mortgage term the whole mortgage is paid off.
SW: Super. So as an investor, should I look towards the interest only option or the repayment option?
CS: Good question, Stuart. Well I think it totally depends what you want that rental income to do. Would you prefer to have a residual income each month, in which case you may be better to have that on interest only, so you’ve got a larger income coming in each month. Or would you prefer to pay that mortgage off, so at the end of the mortgage term you’ve got more rental income coming in and there’s a nest egg, a pot of money, because you’ve paid that mortgage off. So it depends on your mortgage strategy and what you want that rental income to do for you.
SW: I understand. So it looks like it’s always geared to the investors, the individual strategy. So what kind of rates are you and your investors getting at the moment?
CS: So for investors, I mean, if you’re looking at the high street, the rates are starting anything from about 1.55% for a two year fixed rate, and anything from 2.15% for a five year fixed rate. But again, it completely depends on your personal circumstances.
SWs: Yeah, absolutely, subject to status of course. We work with investors from all over the world, and therefore I’ve seen rates go from that 1.55, as you said, all the way slightly higher than that. So what are the determining factors that determine the rates that you’re offered?
CS: So if you’re looking at rates starting from say 3 to 4%, for example, that probably means you’ve gone to a specialist lender. And the fact is that why-
SW: As opposed to a high street lender.
CS: As opposed to a high street lender. And the things that would influence you approaching a specialist lender, or me advising you to a specialist lender, would be things like being a portfolio landlord, buying under a limited company, buying under a trading company, if you’re an overseas national, if you’re an expat, having adverse credit. So all these types of clients would fit under specialist lending.
SW: Okay, that’s superb. Well you touched on it there, a lot of our investors come to us and say, “What’s the best thing for me to do at the moment? Is it to buy personally or should I be buying through a limited company?” And how does that fit with you as a mortgage broker?
CS: I mean, that’s certainly a hot topic. The first thing that I would advise a client to do, an investor, is actually seek the advice of, of course, a local, independent property accountant. But of course with all the recent tax changes that have come into play, including the tapered down tax relief, in some circumstances if you are a higher rate tax payer, it may be better for you to purchase a buy-to-let property under a limited company. However, I’m not a tax advisor, I am just a mortgage specialist.
SW: Always seek the advice of the expert.
CS: Always seek the advice of the expert.
SW: I think you just touched on it there, in this day and age of robo advice and click here for a quote, etc, etc, what role really does the mortgage broker play nowadays?
CS: I don’t know if you know, Stuart, but there’s actually 8,000 different mortgage criteria changes that change every single week. So would you trust a computer to keep up-to-date with those changes? Probably not. If you see a independent mortgage advisor, we have access to over 120 different vendors, many specialist products. And it’s not just about the rates, it’s also about the actual advice and the support that you get. I will help guide my client from start to finish. So it’s the overall service and the relationship that you build up with that person that’s.
SW: I think that’s absolutely key. I think, in my experience, property and building a portfolio is about relationships, isn’t it? So securing your power base, your mortgage broker, your trusted agent and your tax accountant, these are the corner stones of a good team when building a buy-to-let property portfolio. So what we do here is we work with investors from the very, very start of their portfolio, through the growth and flourishing into a good, profitable buy-to-let portfolio.
SW: So if you guys have any questions at all, please feel free to quote them below, comment below. If you want to get in touch with myself, or if you want to get in touch with Charlotte and Invoke Finances, we’re more than happy to take your calls and your questions. We look forward to hearing from you in the future. Episode three, or the next episode, should I say, will be with a tax accountant. So look forward to that.
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