Three ways to reduce the cost of property finance

For many people simplest form of property finance is a mortgage, put down a deposit, prove they have a stable income and hey presto, you’re mortgage is agreed. In reality, it is probably not as simple as that but in theory that is the process. However, if you are looking to build a long-term property portfolio there is a need to reduce property-related finance costs going forward. Remember, every penny you save on finance costs drops straight into the bottom line, increasing your net income.

Utilise your assets

If you strip away the complex financial tools available to property investors it all comes down to risk/reward. The greater the collateral you can stake against property finance, the greater the headroom for lenders and the greater the opportunity for borrowers to maximise their underused assets. For example, if you borrow £200,000 and have collateral with a value of £250,000 then this creates a 20% insurance policy. In effect, if you were to default on day one even a fire sale of your collateral would likely cover the whole outstanding amount.

Consider holding your property assets in a company wrapper

While the option to hold property assets in a company has been attractive for large property investors, until recently it has been unclear for those looking at relatively small property portfolios. However, the UK government recently announced a phasing out of personal mortgage interest relief to be replaced by a flat 20% tax credit. We also have the issue of second homes/buy to let investments and the additional stamp duty these now attract. If you are using finance to acquire property then it may well be worthwhile considering creating a property company to hold your property assets. Each situation will be different therefore it is advisable to take advice from your financial advisor.

Have you considered re-mortgaging?

In a similar context to renewing your car insurance, many people are aware of relatively low re-mortgaging rates and special offers but do nothing about them. At this moment in time it seems unlikely that UK interest rates will return to traditional historic levels for some time to come. As a consequence, cheap finance is readily available to lenders in the mortgage market, a market which is extremely competitive at the moment. So, there is the opportunity to reduce interest charges in the short to medium term which again allows additional capital to flow into your bottom line. When considering re-mortgaging offers, take a look at not only the headline interest rate but also any accompanying charges. Take everything into consideration before committing yourself.

If someone offered you a few thousand pounds in savings, would you take them?

It may seem a little strange to ask this question but in reality many property investors appear to be looking a gift horse in the mouth and doing nothing about it. For many property investors now is the time to combat the ever increasing property investment tax burden brought on by the UK government. Lump your insurance policies together, refinance your properties if the terms are right and utilise existing assets as collateral to reduce headline interest rates.

Many of these opportunities will in isolation reduce your costs markedly. However, together they can have a major impact on your cash flow, net returns and put you on a much sounder footing going forward. What is there not to like about that?

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