Raising Capital or Retaining Cashflow on a Bank Base Rate Tracker

by Readers Question

12:18 PM, 4th June 2014
About 7 years ago

Raising Capital or Retaining Cashflow on a Bank Base Rate Tracker

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Raising Capital or Retaining Cashflow on a Bank Base Rate Tracker

Wrestling with a common dilemma whether to sell a good cashflowing flat on a low rate BoE tracker or sell to raise capital to reduce some unsecured debt and invest in another property.

Selling will raise £60K whereas the cashflow is c.6.5k pa. but a lease extension will be required in about 5 years which will have a capital cost and reduce appeal of the property unless extension is obtained. CGT will be minimal.

I feel rather reluctant to let go of the BoE tracker at 1.99% above base as such products are unlikely to be sourced in the future and are obviously ultra competitive to help rental cashflow.

Comments and observations welcome please.

Lord Smythescales


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Comments

Neil Patterson

21:50 PM, 4th June 2014
About 7 years ago

Reply to the comment left by "Ian Ringrose" at "04/06/2014 - 21:13":

Good question Ian 🙂

I suspect the lender would try to wriggle out of a 1.99 over base tracker, but that would be nice if it was possible.

Ian Ringrose

22:21 PM, 4th June 2014
About 7 years ago

Reply to the comment left by "Neil Patterson" at "04/06/2014 - 21:50":

The Woolwich let us do it...

Mark Alexander

22:25 PM, 4th June 2014
About 7 years ago

Reply to the comment left by "Ian Ringrose" at "04/06/2014 - 22:21":

I'm using the portability option with BM Solutions at the moment on a low rate tracker 🙂
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Lord Smythe

22:46 PM, 4th June 2014
About 7 years ago

Mine is with Basinghall so I think porting is out of the question

Mark Alexander

8:06 AM, 5th June 2014
About 7 years ago

Reply to the comment left by "Lord Smythe" at "04/06/2014 - 17:40":

May I begin by complimenting Neil's superb analysis of your position so far. I was away on business in London yesterday, hence I am a late comer to this thread.

By piecing the information together information disclosed from the discussion so far it would appear that the property has a value of circa £270,000 and a net realisable value if it is sold and the Basinall mortgage is repaid of some £60,000. This means that the mortgage redemption figure has to be less than £210,000 allowing for costs of sale. Accordingly I am going to assume a redemption figure of £202,500 for my calculations. I must stress, however, that my suggestions are purely academic and must not be taken to constitute financial advice.

On the above basis the figures would suggest a current LTV of 75%.

Given that the asset and the mortgage are intrinsically linked and cannot be separated, we must look at the whole deal as an asset. This asset is currently producing very positive cashflow as Neil has pointed out. The objective now is to consider whether that cashflow can be improved and I think it can, WITHOUT selling the asset.

Have you considered equity finance?

Please see >>> http://www.property118.com/equity-finance-for-buy-to-let-landlords/44713/

If the assumed figures are correct you may well be able to raise an additional £27,000. The ongoing cost of this would be sharing 20% of future capital appreciation with the equity financier but would not affect you cashflow in any way.The money raised could be used to reduce the expensive unsecured debt, this improving your cashflow.

If I were in your shoes the above would be my preferred plan of action.

I must point out though that I have a strongly held belief that we will see further capital appreciation and a sustained period of low interest rates. If the reverse of that is true then retaining the property could work against you. Accordingly, a commercial decision is required and only you can make such a decision as on your own perceptions of the market, balance of probability and attitude to risk.

I wish you well which ever route you decide to progress.
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Lord Smythe

9:44 AM, 5th June 2014
About 7 years ago

Reply to the comment left by "Mark Alexander" at "05/06/2014 - 08:06":

Mark

Thanks for your detailed reply and suggestions. I would wholly agree that in general terms we will see " further capital appreciation and a sustained period of low interest rates."

For the record the LTV is slightly below 75%. I have and generally do look at all alternatives to selling including other lenders and equity finance but in this case the lender is not doing further advances or will accept a second charge on the property.

So I feel my options are either sell or retain in the portfolio. My other observation is that the current stamp duty threshold at £250,000 continues to hold the market back and would limit capital appreciation unless one can comfortably value up property towards £300,000 ! There is talk this may change before the election but we will have to wait and see....

I am now on balance erring on the side of retaining the asset and the cashflow and await cashing in the future.

Thanks again to you and all contributors and I may return with further dilemmas !!

Lord S

Mark Alexander

10:04 AM, 5th June 2014
About 7 years ago

Reply to the comment left by "Lord Smythe" at "05/06/2014 - 09:44":

Don't give up on the idea of them accepting a second charge. Just write them a letter asking them whether they would agree to a second charge and see what comes back. I'm aware the T&C's say no but I've seen some very strage decisions that go against T&C's previously when the question is asked. The key is to provide minimal detail on first request, then if they decline, tell them you wish to appeal, state your circumstances for the appeal. If they decline a third time write back saying how dissapointed you are and that if they still feel they are unable to reverse their decision that you will refer all correspondance to the Financial Ombudsman Service ask ask them to decide on whether you have been treated fairly.

My experience is the the FOS are pretty useless most of the time but not all of the time. The incentive for a lender to cave in is that you don't have to pay the FOS but they have to pay £500 regardless of whether a complaint is upheld or not. Additionally, an FOS decision is binding upon a lender but is not binding on you.

The Equity Finance product could allow you to increase the LTV to 85%.

Good luck 🙂
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Chris Amis

10:54 AM, 6th June 2014
About 7 years ago

Reply to the comment left by "Lord Smythe" at "04/06/2014 - 22:46":

Aside...
Likewise at Scottish Widows where I have a BBR+0.5 BTL tracker

I got a near tearful, "there is nobody left to port mortgages" I 'almost' felt sorry for them.

But if I was conned, and they are a functioning entity, let me know.

Puzzler

14:14 PM, 7th June 2014
About 7 years ago

Why not use your good cash flow to reduce your unsecured debt and extend the lease now (or well before the 5 years)?

Lord Smythe

9:04 AM, 9th June 2014
About 7 years ago

Mark - thank you this sounds encouraging and I will give it a go.

I am assuming this approach would not work with Mortgage Express as they are in effect in government hands now ?

Thanks to Chris and Puzzler its to be decided....

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