Strategy to grow your portfolio 75% LTV or 80% LTV and why?

by Readers Question

11:24 AM, 22nd February 2016
About 3 years ago

Strategy to grow your portfolio 75% LTV or 80% LTV and why?

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Strategy to grow your portfolio 75% LTV or 80% LTV and why?

I’m hoping some experienced BTL’ers can share their strategies on how they grow their portfolio, illustrating reasons behind opting for 80% LTV BTL mortgages as opposed to 75%.ltv

My current strategy is to grow my BTL portfolio by re-investing rental profits and refinancing when possible to release equity. This is a long term play. The properties I own are in a high % rental yield area (~10%) but very little capital growth. I have set aside a 20% liquidity fund

To illustrate better lets base it on 2 example remortgages, here’s the numbers

Based on a remortgage of £100,000

Mortgage 1
—————
Property Valuation £100,000
75% LTV
£140/month interest only
2 year tracker
Fees = £2610 (£2255 can be added)

Mortgage 2
—————
Property Valuation £100,000
80% LTV
£266/month interest only
2 year fixed
Fees = £2610 (£2255 can be added)

Total £ interest + fees based over 2 years
——————————————————
Mortgage 1 – £5805
Mortgage 2 – £8954

So it seems if I go the 80% LTV route, I am paying £3149 for the privilege of borrowing an extra £5000 over a 2 year period.

If this was repeated on 3 other properties at 80% LTV:

3 properties: £9447 cost over 2 years (80% LTV BTL)

The extra £15,000 could secure another BTL earning a monthly return on equity (cashflow) in £320 (£3840/yr). With little capital growth the figures don’t not stack up or am I missing something here?

Your thoughts please?

Stuart



Comments

Martin Gardner

11:53 AM, 22nd February 2016
About 3 years ago

First I would check your figures at 80% £266 why has it jumped from £144 that's a big jump, check the illustration your working from.

You also have to take into consideration the mortgage providers terms, something I overlooked once, for example The Mortgage Works would give me a 20% deposit deal and when RE borrowing up to 80% LVT but only after 6 months, Virgin Money gave me a 25% deposit but would only let me re-borrow up to 70% interest only and up to 75% repayment for buy to let, but can reborrow after a month.

So have to take other things into consideration, personally, I don't wait for the market rise that's just a bonus. I buy property I can add value to, do them up, let and re-borrow every 6 months on each property and buy another, if there isn't at least 18-20k reborrow option then I don't buy.

Stuart

13:00 PM, 22nd February 2016
About 3 years ago

Thanks for your comments Martin.

I re-checked the figures that I got from the remortgage option from http://www.property118.com/mortgage-sourcing/ (100K, 20K deposit, 80% LTV)

Here is a screenshot of the monthly rate here - http://prntscr.com/a6hr5m

Feel free to put the numbers in.

Remortgage 1 (80% LTV) 3.99% 2yr fixed at £266/month
Remortgage 2 (75% LTV) 2.24% 2yr tracker at £140/month

The example I used was comparing lenders after having owned the property for 6 months to get a more competitive choice.

So to address my main point and to satisfy your buying criteria.

If you could remortgage a hypothetical property on 75% LTV and release 18000 profit

or

remortgage same property on 80% LTV and release 23000 profit
(but pay £3024 more in interest only costs over 24 months)

The fees in both cases being equal

What would you do?

Rob Crawford

13:09 PM, 22nd February 2016
About 3 years ago

I looked into this some time ago and based on my calculations an LTV of 65% gave the results that I felt offered the best low risk value. The figure will depend on capital cost and rental income and this would differ depending on what region your properties are located. You need to consider the risks associated with higher LTV's and the impact that higher interest rates would have.

Martin Gardner

14:58 PM, 22nd February 2016
About 3 years ago

Reply to the comment left by "stuart john" at "22/02/2016 - 13:00":

In my case and area, I would go for the 80% purely as its another 5k towards another property, for £23k (80K deposit £16k) I could buy another and do it up and make further equity and another rental income. More than the cost of the extra interest and have some left to do it up, to add value. The reborrow on next one and start again 🙂

Jonathan Clarke

5:16 AM, 23rd February 2016
About 3 years ago

Hi Stuart

My strategy when i was buying was much the same as Martins

Buy 4 x 100K @ 75% LTV

or much better

Buy 5 x 100K @ 80% LTV

Get 1 property extra with all the opportunity that brings of ...

1) buying well at a discount ( save maybe 5k)
2) adding value through refurb ( spend 5K add 10K )
3) increase cash flow with rent ( a few hundred extra )
4) increased capital growth ( 5% growth = 5K extra )

Those benefits far outweighed the slightly increased mortgage costs
I bought in the days when 85% LTV was the norm. If I could have borrowed at 100% LTV I would have done because I had such faith in my model .

The model works. Its then about attitude to risk. Cover those risks with a contingency fund, good cash flow and and a mix of fixed rates to mitigate interest rates rising then the risks are covered as best as you can .

Then it boils down to your skill as a property investor and conquering perhaps the biggest hurdle which is often the perceived in built initial fear of having a high leverage strategy. ie borrowing shed loads of cash

Like many others - My parents told me to pay off my mortgage - dont have debt. Dont borrow. Its shameful . Its irresponsible etc etc
... I disagreed and rebelled

Why? Because this is borrowing to invest. Thats totally different
If you buy one property and it works as a stand alone business
Then you will be richer if you replicate that model and buy more

Good luck
.

Rob Spriggs

16:11 PM, 24th February 2016
About 3 years ago

Reply to the comment left by "Rob Crawford" at "22/02/2016 - 13:09":

Totally agree that it depends on the geographical location of the BTL - sometimes the mortgage criteria will not allow you to get close to 80% LTV gearing - rental yields could be low but capital appreciation could be higher.
I recently sold a property because the I couldn't gear it above 60% (mortgage lending criteria) but I'm now making that equity work harder by buying another BTL.


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