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 Howard Reuben CeMap CeRER

16:28 PM, 18th November 2013, About 8 years ago

Reply to the comment left by "Mark Alexander" at "18/11/2013 - 16:16":

Of course - that revised paragraph works just as well. Thanks.

by Simone Gilks (Mortgage Adviser)

10:06 AM, 19th November 2013, About 8 years ago

Are you an Ex-Pat with Investment properties in the UK, then this product is now available to you too!

by Alistair Cooper

19:29 PM, 24th November 2013, About 8 years ago

Do you know if there are any age restrictions with this product? This would be an excellent route to raise additional capital on my mothers portfolio as she currently has £1.2m in loans on a tracker with Chelsea which would be very hard to beat.

However as a young fit and mentally coherent 78 year old the majority of the BTL lending market seem to fear that she may meet her maker any moment!

I appreciate there are a few BTL lenders that take a sensible and balanced view on the age of their applicants, but in this case there a number of reasons that make the Castle Trust product a much more viable option than remortgaging.

Thx.

by Howard Reuben CeMap CeRER

16:04 PM, 25th November 2013, About 8 years ago

Reply to the comment left by "Alistair Cooper" at "24/11/2013 - 19:29":

Hi Alistair

There are indeed certain age restrictions and they are as follows;

Minimum age 21
Oldest borrower must not exceed 80 at the end of the mortgage term

Full product details here > http://www.hdconsultants.net/buy-to-let/castle-trust-btl-equity-withdrawal-no-monthly-payments/

There is however a similar product to the above, which is a traditional type of 'equity release' product and it is designed specifically for older borrowers. The amount (LTV to be released) which you can borrow is based on the age of the borrower, as follows;

"Purpose For private landlords who wish to raise a cash lump sum against the security of their residential investment property(ies), let out on an Assured Shorthold Tenancy agreement, whilst continuing to own the property and benefit from the rental income for life. Up to 5 properties are allowed per loan application. Cannot be rented to family members.

Age and number of applicants Minimum age 55 – no maximum age. Maximum of 2 applicants"

Loan amount Minimum £25,000 – maximum £250,000
Property value Minimum property value £150,000 – maximum £1million
Tenure Freehold or leasehold
For leasehold properties there must be 80 years remaining on the lease at Completion
Location England or Wales
A ‘No Negative Equity Guarantee’, which means that if the property is sold for less than the loan and interest due after sale costs, any debt is not passed on to the owner’s family and any future beneficiaries of the estate (provided the mortgage terms and conditions - including property maintenance - have been complied with).
A fixed interest rate which will not change throughout the term of the loan.

55 = 13%
56 = 14%
57 = 15%
58 = 16%
59 = 17%
60 = 18%
61 = 19%
62 = 20%
63 = 21%
64 = 22%
65 = 23%
66 = 24%
67 = 25%
68 = 26%
69 = 27%
70 = 28%
71 = 29%
72 = 30%
73 = 31%
74 = 32%
75 = 33%
76 = 34%
77 = 35%
78 = 36%
79 = 37%
80 = 38%
81 = 38.5%
82 = 39%
83 = 40%
84 = 41%
85 += 42%

This product requires specialist advice.

Hope this helps.

Howard

by Robert Taylor

16:40 PM, 3rd December 2013, About 8 years ago

I have received a loan offer from Castle Trust but am finding it difficult to get a reasonable quotation from solicitors to deal with the legals in taking out the second charge on the property. Has anyone else found the same or can anyone recommend a solicitor with a reasonable charge for this.

by Mark Alexander

7:39 AM, 4th December 2013, About 8 years ago

What do you consider to be "reasonable"?
.

by Alistair Cooper

9:39 AM, 4th December 2013, About 8 years ago

Reply to the comment left by "Howard Reuben" at "25/11/2013 - 16:04":

Thx Howard for this detailed response. Its a pity about the HMO restriction on this product but it may work for us if CT will agree a 2 year term on the properties we let on single AST's.. Rgds

by Robert Taylor

10:48 AM, 5th December 2013, About 8 years ago

Reply to the comment left by "Mark Alexander" at "04/12/2013 - 07:39":

I would consider a reasonable cost, less than £350 + vat plus disbursements.

by Ben Moreland

17:04 PM, 5th December 2013, About 8 years ago

Hi Mark

What happens at the end of the term, i.e. ten years? Do you have to pay back the money borrowed + capital growth?

Kind Regards
Ben

by Mark Alexander

17:17 PM, 5th December 2013, About 8 years ago

Reply to the comment left by "Ben Moreland" at "05/12/2013 - 17:04":

Yes, you would need to sell, refinance or take a further advance from your existing lender at that point. Bearing in mind you would only need to refinance 60% of the growth this should prove to be too much of a problem. You could even consider swapping the expiring equity loan for a new one providing the overall LTV figures allowed for that 🙂
.


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