Buy-to-Let mortgages for properties with lower rental yields

by Mark Edwards

9:03 AM, 4th August 2014
About 4 years ago

Buy-to-Let mortgages for properties with lower rental yields

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Buy-to-Let mortgages for properties with lower rental yields

Most buy to let products have a interest cover calculation which requires rents to be at least 125% of the monthly interest at a notional rate of 5%. To help simplify the calculation, the monthly rent can just  be multiplied by 192 to give the maximum loan. Mark Edwards - Residential Property Landlord and Finance Broker

This has been the position for some time, however a new product has recently become available. For loans up to a maximum of 75% the products actual Lifetime Tracker rate of 4% is used for the 125% interest cover. This means the monthly rent can be multiplied by 240 to achieve the maximum loan.

If 70% loan to value works for you then you may be able to take advantage of a 3.70% Lifetime  Tracker. This product has an interest cover multiple of a whopping 259.45 the monthly rent!

Although all borrowers must be employed or self employed there are no minimum income requirements.

The minimum loan size is £100,000 and all products come with a 3% lenders arrangement fee, which can be added to the advance.

These mortgage products are ideally suited to borrowers who don’t need cashflow from the properties they are mortgaging. Whilst gearing income at these levels is not always a good idea, for investors with very strong cashflow from other properties or significant surplus income from other sources, these products can be extremely useful. The alternative method of funding a low geared property would be to remortgage other properties onto a portfolio mortgage which assesses income across the entire portfolio as opposed to doing so on a transactional basis. Both forms of mortgage strategies have their merits, hence advice is required on which is most appropriate. The mortgages described above are often utilised by investors wishing to speculate on capital growth in lower yielding areas such as London. In some cases, some investors consider it to be worthwhile to subsidise cashflow.

Investors should always apply common sense to gearing of both LTV and income.

If you would like further details or to discuss your specific circumstances please contact me by completing the form below.

Contact Mark Edwards



Comments

Mark Alexander

9:20 AM, 4th August 2014
About 4 years ago

Brilliant article Mark, I agree entirely and I'm really pleased to see that you explained where such products can fit into the overall game-plan in terms of financing a property portfolio as well as the types of investors who will gain the most benefit from these products.

Portfolio mortgages are fantastic in the right circumstances, I have one myself! However, they do have their drawbacks, not least of which are the initial costs of setting them up. There is also an ongoing requirement to maintain LTV's and rental cover at a certain rate which can make it difficult to manage finances if properties are purchased and sold at regular intervals. Therefore, I can see very clearly why the mortgage products that you have highlighted will be of great benefit to some people.
.

LVW4

14:01 PM, 4th August 2014
About 4 years ago

Sounds great, but a 3% arrangement fee! If I wanted to max a £3K per month rental on this product, that's some thing like a £23,000 arrangement fee! Or have I got this wrong?

Mark Alexander

14:21 PM, 4th August 2014
About 4 years ago

Reply to the comment left by "Lou Valdini" at "04/08/2014 - 14:01":

Without working the numbers on a calculator your figures sound about right to me Lou. What you have to bear in mind is that lenders take their profits in many ways. Sometimes it's fees, sometimes it's margin, often a combination of both. As the product Mark has mention is a Lifetime Tracker this all needs to be weighed up. Also, it could be argued that this lender is taking a higher than average risk on serviceability.

The bottom line is that if a deal stacks on this product but doesn't on any others then it's the best possible deal by default. The same could be said for the 85% LTV products for HMO lending which Mark mentioned in one of his previous Guest Articles - see >>> http://www.property118.com/hmo-finance-85-ltv/66063/
.

LVW4

14:35 PM, 4th August 2014
About 4 years ago

Agreed. Each deal must be taken on its merits for your particular need at the time. If you need a £700K BTL, and you do not have a large regular PAYE income, there are very few options. I've just re-mortgaged with Holmesdale Building Society. 1% discount on SVR for 5 years, then SVR. £900 arrangement fee. Very sensible underwriting. Only disadvantage was the arrangement fee could not be added to loan.

Mark Alexander

15:08 PM, 4th August 2014
About 4 years ago

Reply to the comment left by "Lou Valdini" at "04/08/2014 - 14:35":

Hi Lou

I'd suggest the arrangement fees not being added to the loan is the least of your worries.

An SVR on a loan that size would frighten the life out of me.

Holmesdale are a very small building society. If they decide to get out of BTL they will be in a position to set their SVR at any rate they wish. They couldn't do that with a tracker mortgage. If they do increase their BTL SVR then you are at the marcy of the market, i.e. property values and lending criteria of other lenders. That is NOT a good position to be in.
.

LVW4

15:39 PM, 4th August 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "04/08/2014 - 15:08":

Yes Mark, I agree it is frightening. However, I felt I should take advantage of London values, and it suited my needs and appetite for risk at this time. The rent will cover a significant increase in the SVR, but if it becomes unpalatable, I am ready to sell up and take the remaining equity as part of my 'pension', and will still have a property mortgage-free in Bath, where property prices are still increasing against a massive lack of supply. I won against 13 proceedable offers, all around 15% above asking price.

amelia ward

2:30 AM, 5th August 2014
About 4 years ago

Will the lender consider a BTL landlord of many years with several London properties who no longer lives in the UK and isnt a British citizen? Im repeatedly hearing this is a considerable stumbling block after all the recent changes in the UK laws.
Im British with all my family in the UK but my husband isnt. We're both on the mortgages which is the stumbling block. Although we run the flats like a business, make returns to the HMRC and have UK bank accounts most banks wont consider us because my husband is an Aussie and we're currently living in Australia. We want to remortgage 1 particular BTL with a healthy equity and a long standing tenant with a view to buying a house near my mum in Lincolnshire for our return in 1 maybe 2 years.
Any advice for BTL landlords considered unsafe credit wise due to current location and citizenship yet with strong, healthy portfolios?

Mark Edwards

9:30 AM, 5th August 2014
About 4 years ago

The product is not available for Ex Pats (British nationals living abroad), however I do have a lender that will lend to Ex Pats.

The rate is 4.49% Variable with a maximum loan to value of 75%. The lenders arrangement fee is 2.5% this can be added to the advance. The property needs to be in London/South East to qualify for this particular product, for other areas of the UK the payable rate will be 5.79%.

The lender will not lend to foreign nationals living abroad so you would need to transfer your husbands equity to you in order to complete on the mortgage. However you mention that you intend to move to the UK in a few years, once your husband has lived in the UK for 3 years he could potentially be added back to the mortgage.

If you are interested in discussing these ideas or taking this forward please contact me.


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