BTL Second Charge Mortgages / No Monthly Payments

BTL Second Charge Mortgages / No Monthly Payments

21:59 PM, 30th October 2013, About 8 years ago 145

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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. BTL Further Advances No Monthly Payments

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

by Andy Bose

11:08 AM, 21st February 2014, About 8 years ago

Mark, you mentioned on another article that some BTL lenders are considering purchase products with Castle Trust. Which lenders are these? I have a portfolio and may need to look at other lenders to increase it and this sounds interesting.

by Mark Alexander

12:02 PM, 21st February 2014, About 8 years ago

Reply to the comment left by "Andy Bose" at "21/02/2014 - 11:08":

Hi Andy

No lenders have a product which includes equity finance at the point of purchase yet. They are coming but please don't ask me when because we thought we'd have been notified of a few by now.

For now, it's a case of putting in a 40% deposit and then drawing half of that back in 6 or more months time or buying with a higher LTV mortgage, adding value and then taking out money via equity finance at a later date, minimum 6 months again unfortunately.
.

by Kieran Geraghty

10:26 AM, 6th March 2014, About 8 years ago

Reply to the comment left by "Howard Reuben" at "04/11/2013 - 18:49":

Hi Howard,

I have a scenario that may fit with the Castle Trust Equity Loan but I need to clarify a few points. The property is my residential home, I intend to carry out an extension and I'm looking a ways to raise finance to cover part of the works. As the works will increase the value of the property, how will the uplift in value be calculated by CT valuer? Will the uplift from the extension and renovation be deducted?

Current MV £575,000
Mortgage £390,000
Extension Costs £150,000
Max Funds from CT (80%ltv) £70,000
After works value £800,000
Uplift in value after costs £75,000
40% of uplift to CT £30,000 OR will the uplift in value from the works be taken off? If so how can they quantify this?

I note that there has been a mention that having the second charge registered my make it more difficult to refinance. Why is this the case? The refinance would be sufficient to pay off both the existing mortgage and CT.

by Mark Alexander

10:37 AM, 6th March 2014, About 8 years ago

Hi Keiran

I wouldn't recommend the Castle Trust product for this scenario and I'm quite confident that Howard wont either. You would be far better off with either a second charge mortgage or a complete refinance. Howard is well placed to help you consider which of these two options suits you best.
.

by Gillian Schifreen

11:37 AM, 6th March 2014, About 8 years ago

I am now about to complete with this product. However, as I anticipated when they did the valuation it was under what the property is worth. No identical house has sold for under £320,000 in the past 5 yrs but they valued it at £300k. So when it is eventually sold they will make far more from the uplift than they should have done.

When I queried the valuation I received a 'like it or lump it' response. I did expect this but am just warning the rest of you.

by Howard Reuben CeMap CeRER

11:18 AM, 7th March 2014, About 8 years ago

Hi Kieran

I concur with Mark that based on your project ideas, that the CT product would not be the most viable option for you. There are indeed more suitable finance deals available on the market that would not be as restrictive or ultimately as costly, for this specific case.

Happy to discuss further, and my contact details are in my profile above.

Best

Howard

by Howard Reuben CeMap CeRER

11:20 AM, 7th March 2014, About 8 years ago

Reply to the comment left by "Gillian Schifreen " at "06/03/2014 - 11:37":

Hi Gillian

Who did you query this with? Did you go direct (in which case, you'll not get the assistance of a Broker who may have influence) or did you go via a Broker, in which case if said that to you, I'd try another one! (my contact details are above! 🙂 )

Howard

by CAS

16:35 PM, 15th April 2014, About 8 years ago

It seems strange for you to charge a non-refundable fee of £200 when I may not meet the basic criteria for this lender. I could be paying £200 to be told I don't qualify. Fees are normally charged by intermediaries when an offer is made.

by Mark Alexander

17:25 PM, 15th April 2014, About 8 years ago

Reply to the comment left by "Adam Smith" at "15/04/2014 - 16:35":

We are not brokers Adam.

You may also pay £200 to be told this is not the right deal for you, that could be £200 well spent. Please see >>> http://www.property118.com/consultancy-mark-alexander/61522/
.

by Gillian Schifreen

18:57 PM, 15th April 2014, About 8 years ago

Reply to the comment left by "Howard Reuben" at "07/03/2014 - 11:20":

I'd did go through you Howard, with Mark!


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