Property Investment FAQs

LTV is the abbreviated version of loan-to-value. When securing a mortgage, the LTV is the difference between the deposit and the loan. Generally, a high LTV would be anything from 75%-95%, whereas anything below 74% is classed as a low LTV.

A first-time buyer may secure a high 95% loan-to-value mortgage, as they may not be able to save for a deposit. The buyer would then pay interest on the 95% loan.

A cash buyer is someone who has the money to buy their property outright, without the use of a loan or mortgage. This is often cheaper in the long term as no interest would have to be paid. However, it is much harder to save such a large sum of cash, and this is more often achieved by selling existing assets.

Cash buyers can sometimes get a better deal when buying a property in cash, as there are fewer complications during the transaction.

Firstly, what is a mortgage rate? A mortgage rate is the amount of interest a buyer pays on the loan they have taken out.

There are a variety of mortgage options available in the market to suit each individual’s needs. The different mortgage rates available are:

Fixed-Rate: Fixed-rate mortgages are the most popular. This is when the rate is agreed upon with the lender and will be fixed for a set term, which can range from two to five years. These mortgage options are popular as they allow the homeowner to budget as payments will stay the same for a fixed period of time. Typically, buy-to-let mortgages are on a slightly higher rate than buy-to-live.

Standard Variable: Standard variable mortgages are usually the most expensive on the market. The lender can change rates with little to no notice. This is the default mortgage option if a fixed term is not renegotiated. However, the buyer can switch to another lender or mortgage scheme with no exit fees.

Discount Variable: A discount variable is only available for up to two years; this gives the buyer a -1% discount on their interest rates. If the interest rate is 4% the buyer will pay 3%. Once the discount period ends, the buyer will switch back to a standard variable rate.

Tracker: A tracker mortgage usually follows the Bank of England base rate, with an additional 1.5%. Therefore, if the Bank of England base rate is 1% then the buyer will pay 2.5%. This can be cheaper than a fixed rate. However, if Bank of England rates climb to 3.5%, the buyer will pay 5% interest on their mortgage. This makes a tracker mortgage harder to budget for.

Typically, the minimum deposit needed to secure a buy-to-let property is 25%, although this can vary from 20% to 40%.

This represents a 75% loan-to-value mortgage, although in most cases investors will look to secure a lower loan-to-value mortgage by paying a higher deposit.

Conveyancing is the transfer of legal documents and the exchange of property from one party to another. Often, the buyer will instruct a specialist solicitor to see the exchange through to completion. While a buyer can take control of this themselves, it can become very costly if any complications arise at this stage.

Stamp Duty Land Tax is a compulsory payment when purchasing a single property. The SDLT can significantly vary depending on where the buyer is located, the price of the property, and the type of property purchased.

To calculate the charge on your property, use the CityRise Stamp Duty Calculator.

An off-market investment is a property on sale, which is not listed on a public platform. This offers investors the opportunity to purchase something exclusive, which has not been listed on all property portals.

An HMO, or a House in Multiple Occupation, is a property which is rented out to at least 3 tenants at one time, who are not from one household. In HMOs, there will often be a shared kitchen, living and dining area, and shared bathrooms.

Each tenant is under a different tenancy agreement. HMOs usually generate higher rental income as the rent is divided on a room-per-room basis. In some cases, a landlord may have to get an HMO licence, so it is best to check with the local council.

Capital growth is the increase in property value over time. There are several factors which can influence property price growth, such as the desirability of a location and the economic growth within the city.

For example:

An investor purchases a property for £200,000.

The property value appreciates by 10%.

Therefore, the capital growth equals £20,000.

Once the investor sells the property, the profit from the property will be the capital gain.

The return on investment is the cumulative profit made from a property. This includes the total rental profit and capital gain.

Property is considered one of the most secure types of investment because it is a physical asset. When compared to stocks or cryptocurrency, it is highly unlikely for property to dramatically reduce in value. While gains can be slower, they are typically more stable and often continuously growing. In fact, average property prices have risen by around £95,000 in the last decade.

Using a property management service is a great way to be a hands-off landlord. For investors looking for a hassle-free experience, their property can be maintained, tenants sourced, and payments managed. This comes at a small cost, usually a small percentage of the monthly rental income, but can save the landlord a lot of time and money in the long term. However, some landlords prefer to be hands-on and manage their own property.