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:
    Fees are non-refundable



Comments

by Jeremy Smith

1:16 AM, 16th April 2014, About 8 years ago

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

Thank you Gillian, that doesn't surprise me either.
Sounds like a bit of a stitch-up, I wonder if the valuations will be the other way round when it comes to you selling ?

I have four properties that I could benefit from this "offer", but I do not want to be spending money without knowing I will be able to take "advantage" of the offer, and also knowing I will not be stitched up with the valuations.

...Perhaps I will stick with my cash, getting rich slowly, instead of making someone else get rich quickly !!

by Mark Alexander

7:59 AM, 16th April 2014, About 8 years ago

Reply to the comment left by "Jeremy Smith" at "16/04/2014 - 01:16":

Ooo that sounds a bit harsh Jeremy, we don't know the full circumstances yet, i.e. whether Gillian went ahead with the deal on the basis of the valuation being unchallenged or whether it was challenged and the outcome of that.

It will be interesting to see how Howard responds too.
.

by Howard Reuben CeMap CeRER

8:14 AM, 16th April 2014, About 8 years ago

Reply to the comment left by "Gillian Schifreen " at "15/04/2014 - 18:57":

Good morning Gillian

For clarity (and so that my Firm's good name does not get besmirched by inadvertent implication) I can confirm that you did NOT go through my Firm for this Castle Trust deal.

This particular Property118 thread is specific to that product.

The service you received from my Firm, was for another deal (a BTL mortgage) altogether, and you received a first class service from Stephen Pears, one of our senior financial consultants.

I'm sorry to hear that you are not happy with the CT transaction, but maybe you should take this up with the 'other' Firm instead.

Would you kindly reply to this comment by confirming publicly that my Firm was not indeed the service provider for your Castle Trust transaction? On the basis of keeping the facts in order, I would appreciate your correction.

Thank you.

Howard.

by Howard Reuben CeMap CeRER

8:22 AM, 16th April 2014, About 8 years ago

Reply to the comment left by "Jeremy Smith" at "16/04/2014 - 01:16":

Jeremy - when you commented "Sounds like a bit of a stitch-up" I very much hope you were not implying anything adverse on me or my Firm. I pride myself on our professionalism and the service we carry out.

Gillian is incorrect by bringing my name in to this transaction, We did indeed work with Gillian but this was for another BTL deal altogether and not the CT product.

However saying that, Gillian's grievance was with the valuation - and this is not a service that a Broker carries out anyway. It is our remit to source and secure the most suitable mortgage product. We do not carry out surveys, valuations or provide the valuation report to the lenders. In fact we are often battling on the side of our Client to get the valuers to change their (quite often) downvalued results because they have missed certain crucial property / locale elements.

And even then, it is always the mortgage applicants own choice if they proceed or not. No-one forces a borrower to sign on the dotted line and say yes if the Offer is not agreeable or acceptable (based on valuation or otherwise).

I hope this clarifies our position and I trust you will be amenable to clarifying yours.

Howard

by Neil Patterson

8:40 AM, 16th April 2014, About 8 years ago

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

Hi Gillian,

If this statement is 100% correct I would not proceed until you have had the Valuation at least challenged as in the circumstances described I would have thought it would be easy to overturn.

" No identical house has sold for under £320,000 in the past 5 yrs but they valued it at £300k."

My Advice if you get no where would be for your own peace of mind to independently pay £150 for another RICS qualified surveyor who is well known and used by the banks like your local Countrywide office to do a simple valuation for you. It is likely CT will not be able to use it but you at least know then if your own figures are accurate.

I have seen the difference between client and surveyor values many times and I really would recommend the above so you are not left feeling short changed.

I hope that helps 🙂

PS. If you have identical comparables sold recently to show the surveyor it is very likely you will get an increase in valuation.

by Neil Patterson

8:42 AM, 16th April 2014, About 8 years ago

Reply to the comment left by "Jeremy Smith" at "16/04/2014 - 01:16":

Hi Jeremy,

Surely the selling price is the selling price a known fact unless I have misunderstood.

by Adam Hosker

10:50 AM, 16th April 2014, About 8 years ago

To the best of our knowledge Castle Trust are not purposely down valuing properties via 3rd party independent property surveyors.

Anyone who obtains the valuation back that is not up to expectations should definitely not proceed. Instead CT offers to send a different independent surveyor to the property (although there is small cost involved) and as brokers we do love comparables to go to the appeal process with.

On the exit of the product there are procedures in place if you disagree with the valuations, such as getting an independent valuer in that you appoint. At the start of the contract, if you disagree you should not proceed. It is not "like it or lump it" a business decision needs to be made on whether to proceed, try again or move on.

Any mortgage broker should ask if it is acceptable on that basis and act on there clients instructions. This topic would be the first instance we've seen of an issue with property valuations relating to this product/lender.

by Mark Alexander

11:26 AM, 16th April 2014, About 8 years ago

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

Hi Gillian

Did you actually challenge the valuation when your broker told you about it or did you simply agree to go ahead regardless?
.

by Gillian Schifreen

11:32 AM, 16th April 2014, About 8 years ago

Reply to the comment left by "Mark Alexander" at "16/04/2014 - 11:26":

No to be honest, unlike my normal belligerent self I had recently had a major operation and wasn't up to it. Now of course I wish I had but it was a case of bad timing. I did however challenge a valuation in the past only to be told, 'take it or leave it.'

by Mark Alexander

11:53 AM, 16th April 2014, About 8 years ago

Reply to the comment left by "Gillian Schifreen " at "16/04/2014 - 11:32":

Given the circumstances Gillian you should very seriously consider whether you ought to proceed to completion, even at this late stage. If the valuation really is 20% out you will end up paying £8,000 more for this finance than you should have done.

Thank you for clearing up the position though as I felt that the way the story was originally portrayed might have made me look bad in the eyes of some readers.
.


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