Short term Buy to Let product with no interest payments until redeemed

by Neil Patterson

11:26 AM, 12th November 2014
About 4 years ago

Short term Buy to Let product with no interest payments until redeemed

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Short term Buy to Let product with no interest payments until redeemed

Castle Trust have introduced a new short term Buy to Let product called the Flexible Zero Mortgage, which is designed as an alternative for raising short/medium term finance from 1 to 5 years.short term buy to let

The USP (unique selling point) is that there are no monthly payments, because the interest is accumulated and added to the principle loan amount repayable on redemption.

Castle Trust will want a first legal charge on Buy to Let property with a maximum 50% Loan to Value and a fixed interest rate charged from 7% to 10% dependent on individual factors such as term and LTV. There is also a 2% arrangement fee and an early repayment charge of 5% in the first two years.

If you have an unencumbered property you can therefore release up to 50% LTV for funds to either expand a portfolio or perhaps use it like a long term Bridging loan in a renovate and flip strategy. You are then paying £0 per month keeping your expenditure low and cash flow high. The loan would then have to be repaid or refinanced in 5 years time.

Product Criteria includes:

  • Minimum Property value of £250,000
  • Minimum loan amount £25,000
  • No Maximum age
  • Must be currently employed, self employed with 12 months trading at a profit or retired with a private pension
  • No Minimum income criteria
  • England and Wales only

The product looks expensive and depends realistically on having unencumbered property as security, but in the right circumstance it could be viewed as a form of lower cost longer term Bridging facility and you would need an exit strategy for redemption.

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Comments

Mark Alexander

11:44 AM, 12th November 2014
About 4 years ago

I love the alternative forms of equity finance but I'm afraid I can't see a niche for this one, which is a pity given that Castle Trust are one of our sponsors!

The rates and terms are expensive and the 5% early repayment charge in the first 2 years doesn't make it attractive when compared to some of the better bridging finance products.

If a person has an unencumbered property but insufficient cashflow to make monthly payments then surely they'd be better off taking a slightly larger BTL mortgage, at much lower rates, and then keeping a pot of money on one side to service the monthly interest payments?

Perhaps I'm missing something but I suspect this product will be a bit of a white elephant for Castle Trust, unless of course they are paying brokers big commissions which result in it being mis-sold 🙁
.

Rob Crawford

16:13 PM, 15th November 2014
About 4 years ago

I have to agree with Mark. In fact I have just read it out to my team and we are a little confused as to how anyone in Castle Trust can see a market for this. Anyone from Castle Trust out there for comment?


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