How much deposit on BTL mortgage?

by Readers Question

10:49 AM, 25th May 2015
About 4 years ago

How much deposit on BTL mortgage?

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How much deposit on BTL mortgage?

I currently have two properties rented out, one of which is unencumbered and I want to leave it that way, the other which has a secured loan against it but enough equity for me to raise a deposit for another purchase. How much deposit on BTL mortgage

I’ve been reading about gearing and wondered if I should put down 25% or 40%, obviously the bigger deposit the better interest rate, but what if this goes well and I want to buy more properties in the future? Also once tied into a new BTL mortgage I would have to contend with ERC’s and remortgage fees.

What do you think?

Danny



Comments

Mark Alexander

10:54 AM, 25th May 2015
About 4 years ago

Hi Danny

Your strategic thinking seems a bit confused to me.

If you want a strategy of high gearing why are you looking to leave one property unencumbered?

If you want low rates based on low gearing why are you looking to leave one property unencumbered?

Have you considered 60% to 65% lending on both properties and then equity finance top up's if you decide to release more money to buy more properties? This would increase you gearing without disturbing your low rate mortgages and associated cashflow.

The equity finance might help you to double the size of your portfolio and associated capital growth and cashflow in return for just 40% of the capital growth.

Do the maths, it makes sense.

Also read this discussion thread >>> http://www.property118.com/btl-second-charge-mortgages-no-monthly-payments/44627/
.

money manager

14:34 PM, 25th May 2015
About 4 years ago

As per Mark, clarify your objective. Depending on the lender ERCs needn"t be too much of a problem (10% overpayment facility - eg tmw). Take account of the mortgage fee v rate v LTV as some are horrendous. Don't forget to factor in the gross and net yields into your equation and your need to reduce the risk of the property costs from exceeding property income i.e no recourse to your personal cash flow and at a stressed interest rate (I test up to 8%).

DannyC77 C77

17:30 PM, 25th May 2015
About 4 years ago

hi thanks for your comments

Im not sure yet as to whether I want to get involved in highly geared property purchases, due to the higher risk, so was thinking I would take advantage of the equity I have in one of the houses I already rent out and put down a 40% deposit on this new purchase.

But I was wondering if this would be a mistake, as then if I decided I wanted to get more involved in BTL I would be unable to access further equity from this house I already own now as remortgaging costs would be prohibitive

I was thinking of leaving the unencumbered house as it is, in case of future shortfalls or if I need money due to unforeseen circumstances.

Hope this is clearer

Mark Alexander

22:39 PM, 25th May 2015
About 4 years ago

Reply to the comment left by "DannyC77 C77" at "25/05/2015 - 17:30":

Hi Danny

From my perspective your unencumbered property is your greatest risk in that you lose the ability to leverage returns on your available capital. You also risk losing the ability to raise money if the property market wobbles, if lending criteria wobbles or if your finances or health affect your personal ability to borrow.

Nobody can say what the right strategy is for today without the benefit of many years if not decades of hindsight. What I can tell you is that with the benefit of nearly three decades of hindsight I am very glad I chose the strategy I did, which is documented in this series of articles >>> http://www.property118.com/how-to-become-a-respected-profitable-landlord/60765/

Will you be able to look back in 20+ years and say you made the right choices? Only time will tell.
.


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