BTL Second Charge Mortgages / No Monthly Payments
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by Mark Alexander

4 years ago

BTL Second Charge Mortgages / No Monthly Payments

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BTL Second Charge Mortgages / No Monthly Payments

No this is NOT a wind up, it’s 100% genuine and is important that you know how it works so that at the very least you can make an informed decision about new financing choices which until now have been unavailable to buy to let landlords.

It really is a fantastic way to improve cashflow and rental profits or increase gearing without the need to remortgage.

A very credible mortgage lender (Castle Trust) is offering second charge buy to let mortgages with no interest charges and no monthly payments based on 20% of value subject to both the first and second mortgage combined not exceeding 85% LTV on BTL deals and 80% on your own home.

You can use the money in whatever way you wish, for example:-

  1. You can use it to pay down existing mortgages
  2. You can save the money for a rainy day
  3. You can use the money to buy more property
  4. In fact, you can blow it all at the local casino if your daft enough too!

So what’s the catch?

With no monthly payments or monthly interest charged, the lender must get paid somehow. This product works with a profit share basis, in that you borrow 20% of the value of your property the lender will take 40% of any increase in value – on sale or refinance.

You will also need to obtain permission from your existing mortgage lender for a second charge to be added.

Given that your equity in the property may represent as little as 15% of the value of the property and you will receive 60% of the capital appreciation you don’t need to be Einstein to work out that it’s better to use their money than yours, especially if you use the extra money raised to purchase more properties. Remember, you will not be making any payment or incurring any interest whatsoever until you sell or refinance.

Imagine if somebody put this deal to you …. I want to buy a property, you put 20% of the money and I will put in 15% and borrow the remaining 65%. I take all the rental profit/losses and when we eventually sell the property I will get 60% of the capital appreciation and you will get 40%. Oh and by the way, I will decide when we sell, OK? You would probably say no wouldn’t you? Well if you put that deal to Castle Trust, chances are they will say yes providing you have a good credit rating. It really is that good.

Basic criteria

The loan term can be up to 30 years if the equity loan is secured against your own home, 10 years if it’s a rental property.

Your total LTV must not exceed 85% on a rental property, 80% if the loan is secured on your own home..

There are no limits on the number of properties the lender will consider lending on per borrower and their maximum loan exposure to any one client is £1 million.

The minimum advance is £10,000.

For rental properties there is no requirement to have a first mortgage.

You must be able to prove that you have been a landlord for at least six months to qualify and you also need a decent credit score.

Pros and cons?

I can see several reasons why this will be attractive to landlords and I will be using this product myself for the following reasons …

  1. Deals may not stack up on rent to ordinarily qualify for an 85% LTV mortgage but may do so on this basis
  2. It’s a relatively easy way to raise capital against the security of your existing rental portfolio or your own home
  3. Improved cashflow when compared to a conventional mortgage for a higher amount
  4. Raise money without paying off an amazing tracker or fixed rate deal arranged pre-credit crunch
  5. Avoid potentially extortionate fees associated with refinancing
  6. Increase borrowing without affecting cashflow
  7. Use of other peoples money to increase leverage and returns on capital invested
  8. Castle Trust do not legal or valuation fees to arrange finance on your own home and their arrangement fees are only 1% of the advance. Valuations on rental properties cost £195+ VAT and conveyancing costs £216. This means that total fees are likely to be significantly less than arranging a conventional remortgage.
  9. Some landlords will wish to borrow 20% LTV via Castle Trust to partially redeem their mortgage with another lender and thus benefit from improved cashflow.
  10. Some landlords will wish to utilise this product to borrow more money
  11. Some landlords will wish to mix and match, i.e. reduce existing interest bearing debt and increase overall gearing to 85% LTV

Downsides

  1. Your risk is higher than that of Castle Trust because they get paid back before you do on the basis they have second charge over the property. Therefore, if the property decreases in value then you carry the majority of the risk. However, unless you’ve come to the end of the loan term it’s up to you to decide when you sell, they have no say in it.
  2. Future remortgaging may prove more difficult
  3. No new build property, i.e. properties built in the last two years
  4. The product is only available on properties located in England and Wales (not Scotland or Northern Ireland)
  5. 40% reduction in any future capital appreciation but you do need to consider that you may well be able to use the money to make a better return elsewhere
  6. The improved cashflow, in comparison to an higher traditional mortgage, will increase taxable income. However, many will see that it’s better to pay tax on profit than to have no profit at all
  7. Early repayment charge of 5% in year one
  8. If you wish to repay the loan without selling the property then you are committed to proving Castle Trust a return equal to the greater of 2% per year for the period which the loan has run or 40% of the rise in property price
  9. You will need to contact your existing mortgage lender before progressing matters to establish whether they will allow a second charge to be taken

We have no idea how long this funding will be available for so if this is of interest we recommend you to get in quickly. 

We will be arranging introductions to brokers on a panel of specialist advisers which I have personally hand picked. The role of the adviser will be to review your portfolio and provide you with bespoke advice and quotations based upon your personal circumstances.

We are also considering the demand for free of charge introductions to a non-advised mortgage packager service. However, unless you consider yourself to be a sophisticated investor and in need of no advice and associated protection we strongly recommend you to obtain professional advice from our carefully selected panel of advisers.

Obviously we want to make some money out of this too so we are charging a fee of for introductions to our panel of professional advisers. By charging for the introductions we, and the advisers we are referring to, recognise that only serious enquirers will progress matters. This is a good way to ensure that our advisers are not bogged down answering questions from time wasters and also provides a very a good reason for our recommended advisers to prioritise our referrals.

Our fee for arranging an introduction to a professional adviser, who will visit you to provide face to face advice if that is required, is £200, payable to Innovative Landlord Solutions LLP (the legal owner of Property118.com) either by credit/debit card or via PayPal. You will then be contacted within 7 days.

Professional Adviser Introduction Request Form

  • Price: £ 200.00
    Fees are non-refundable

Comments

craig singleton

4 years ago

Hello Mark, can first time investors get this mortgage without owning a property. Regards craig

Mark Alexander

4 years ago

Reply to the comment left by "craig singleton" at "30/10/2013 - 23:01":

Excellent question.

Yes, these facilities are available on private homes for capital raising purposes too.

You could also buy a property with a 65% mortgage and 35% deposit and then take the second charge to pull out 20% of the value later on. If you can add value to the property it could be a very effective way to recycle your deposits over and over again to build a large portfolio.
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craig singleton

4 years ago

Ok cool, what are the lending criterias. What restrictions do they have in place. As a first time buyer what would I need 20% to qualify for this mortgage or more.

Mark Alexander

4 years ago

Reply to the comment left by "craig singleton" at "30/10/2013 - 23:10":

Hi Craig

I have shared as much information as possible above. You would need to speak to one of our recommended advisers to be able to obtain advice which is bespoke to your personal circumstances. I can only answer general questions here.
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craig singleton

4 years ago

Ok Mark thank you, I really think you should get a team together and start mentoring people. Coaching people in property and writing property investing books

Mark Alexander

4 years ago

Reply to the comment left by "craig singleton" at "30/10/2013 - 23:21":

Perhaps I'm missing the point Craig but isn't that exactly what Property118 is?

I have built a huge online community of landlords and property professionals who want to help each other, I have a team of professional advisers I introduce people to when they need help and I write every single day.

The only difference I can see between what I do and what other "guru's / mentors" do is that I don't run courses, I don't charge monthly fees, I tell people how it really is as opposed to telling them what they want to hear, I work for donations alone and there is no big up-sell at any point.
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craig singleton

4 years ago

Ok Mark, but may be you could run courses etc but better than these other mentors and guru's etc do. Basically get your foot in the door and do things better. Random question that you could may be help me out on. Could I some how use your website to attract investors. I really need someone to invest in me for a very good return without having to do hardly any work at all.

Richard Watters

4 years ago

Mark,

You state: "Castle Trust do not require the consent of a lender providing the first charge."

How do they register their interest? As most Buy to Let lenders will not allow a second charge without their consent, and as I understand it, are unlikely to permit it if asked.

Mark Alexander

4 years ago

Reply to the comment left by "craig singleton" at "30/10/2013 - 23:40":

Hi Craig

It's what I used to do but I retired on 2009. Prior to that I held 33 workshops a year. Venues included Emirates, Reebok, Leicester City and Aston Villa Football stadiums and they were packed to the rafters. They were free to attend and we even included a buffet lunch. There was never an up-sell, the workshops were merely a showcase for my commercial finance brokerage. We had tables of 10 and at least one client was on every table and given the status of a gold attendees badge (not real gold LOL). We didn't need to do any selling, our clients were the best advocates we could ever have.

We hired the same staging crew as Robbie Williams and our marketing team organising the events comprised of 18 employees, plus a similar number of contractors. Having been there and done that I know what hard work it is. The budget for each event was circa £25,000. People still talk about them now, many of our clients and our employees became multi millionaires and some of them still post on Property118 from time to time. I'm just sorry you never experienced one of these workshops.
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Mark Alexander

4 years ago

Reply to the comment left by "Richard Watters" at "31/10/2013 - 07:19":

Hi Richard

Only a property owner or a Court can provide or deny consent for a second charge. First charge mortgage lenders don't have a say in the matter and certainly can't block a second charge being taken because the interests of the first charge mortgage lender are unaffected by a second charge. For example, if the first charge mortgage lender wasn't paid they have exactly the same rights of recovery of their debts including arrears and costs.
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