Tag Archives: BTL

Early Repayment Charge? Buy to Let News, Landlord News, Latest Articles, Property Investment News

Hello, I currently have a 5 year fixed BTL mortgage with Leeds building society at 2.14%. I am looking to sell the property although I am being asked for an early repayment charge of £3k.

Given the base rate is now 3%, and the rate for this same product is close to 6%, I would have thought they would be interested to work with me on this, although this didn’t seem the case when I spoke to them on the phone.

Has anyone any experience of getting out of a fixed rate without paying an early repayment charge due to an increase in interest rates?

Thanks in advance.

Paul


Landbay reduces rates across all five-year fixes Buy to Let News, Landlord News, Latest Articles, Property Investment News

The specialist buy-to-let lender Landbay has revealed that it has reduced the rates on all of its five-year fixed rate mortgages by up to 0.30% and added two new products to its variable fee range.

Paul Brett, Landbay’s managing director, intermediaries, said: “For the second time in two weeks, we have been able to reduce our rates as the money markets start to stabilise.

“Our variable fee structure gives borrowers options which help them to meet rental requirements within the interest cover ratios, which have to be applied to buy-to-let mortgages.

‘Lower interest rate result in a lower rental stress rate’

He added: “A higher upfront fee and a lower interest rate result in a lower rental stress rate, which is beneficial for borrowers.

“But whichever fee and rate option is taken, the total overall cost will be similar over the initial offer period.”

Standard five-year products up to 75% LTV now start at 5.99% with a 4% fee, the 6.19% rate has a fee of 3% and at 6.39% the fee is 2%.

On standard five-year fixes up to 65% LTV, the product with the 2% fee has a rate of 6.29%, the 3% fee is 6.09% and a new 4% fee option has been added with a 5.89% rate.

Green standard five-year fixed rate products

Landbay’s green standard five-year fixed rate products, available for properties with an EPC rating of A-C, have been reduced by 0.20% and come with a 2% fee.

The 65% LTV product has a rate of 6.19% while the 75% LTV is set at 6.29%.

For landlords with small houses in multiple occupation (HMO) and multi-unit freehold blocks (MUFB), comprising of up to six bedrooms/units, there are five-year fixed rates up to 75% LTV.

The current product with a 2% fee has been reduced by 0.20% to 6.59% and a new option that carries a 3% fee has been introduced at 6.39%.

There is also a 0.20% rate reduction to 6.69% on large HMO/MUFB, up to 12 bedrooms/units, with a maximum 75% LTV.

Trading companies also benefit

Trading companies also benefit from 75% LTV five-year fixed rate reductions with standard property down by 0.30% to 6.49% and small HMO/MUFB rates reduced by 0.20% to 6.69%.

Rates in Landbay’s one and two-year fixed and tracker products remain unchanged.


Paragon Bank unveils market-leading five-year fixed rate BTL mortgage BTL mortgages, Buy to Let News, Landlord News, Latest Articles

Paragon Bank has unveiled a market-leading five-year fixed rate buy-to-let mortgage with a reduced reference rate.

The mortgage is available at 70% loan-to-value (LTV) with an initial rate priced at 5.69%. The product is subject to a 2.00% product fee and features a free mortgage valuation.

Paragon is offering the five-year fix with an ICR calculation rate that has been reduced from 7.00% to 5.75%.

The product is available in England, Wales and Scotland and is suitable for portfolio landlords – that is a landlord with four or more mortgaged properties – purchasing or remortgaging houses in multiple occupation (HMO), multi-unit blocks (MUB) and single self-contained (SSC) properties.

‘Pleased to be able to offer a five-year fixed rate product’

Moray Hulme, Paragon’s director for mortgage sales, said: “With a level of stability returning to the market, we’re pleased to be able to offer a five-year fixed rate product that features a market-leading initial rate.

“We feel this will really appeal to those landlords who seek the certainty provided by fixed rates and should sit well alongside our discounted variable products, giving investors some choice.”

He added: “Listening to brokers, we know that landlords have still been keen to stay active in the market, particularly as tenant demand remains strong, so to help facilitate this we have reduced the rate at which we calculate ICRs from 7.00% to 5.75%.”

ERCs of 5% are payable in years one and two, 4% during years three and four and 3% in year five.

APRC is 6.20% and reversion rate is 5.85% – Paragon SVR less 1.25%.

Contact Brooklands Commercial Finance

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Landlords selling up account for 16% of property sales Buy to Let News, Landlord News, Latest Articles

As fed-up landlords brace for further tax rises and soaring mortgage rates, it has been revealed that the number of rental homes being sold is at the highest level in four years.

According to real estate firm Hamptons, 16% or one in six of the homes sold this year have been rental properties.

The data shows that the BTL sell-off was greatest in London with 19% of all home sales being made by landlords.

And when BTL properties come up for sale, it is first-time buyers (FTBs) who are increasingly buying the properties and not other landlords.

FTBs now account for a fifth of buyers

These FTBs now account for a fifth of all home buyers – that’s the highest ratio in five years.

Just one in three properties being sold by a landlord was bought by another landlord, and 47% were sold to other buyers.

Research from analysts TwentyCi also shows landlords who are selling up are not doing to other landlords.

They say that the number of homes to rent has dropped so far that it’s now at the lowest point in five years.

In October, the firm says, 214,938 rental properties were advertised – five years ago there were 339,516 rental homes up for sale.

‘The ‘vilification’ of landlords’

The National Residential Landlords Association’s Chris Norris points to the ‘vilification’ of landlords, ever-changing regulations and rising mortgage rates as being the reasons why landlords are leaving the sector.

Financial analysts at Moneyfacts say an average two-year BTL mortgage rate has risen from 2.9% last December to 6.75% this month.

There’s also the prospect of this month’s Autumn Statement hitting landlords with increased capital gains tax.

Mr Norris told the Daily Telegraph: “The sums just don’t add up on a lot of those properties.

“You’ve either got to put the rent up a lot, which landlords are quite reluctant to do.

“They don’t believe the market will take abnormally large rent increases to cover the mortgage costs.”

Biggest impact would be seen on low-income households

However, with so many landlords leaving the sector, homeless charity Shelter says the impact will be felt most by those on low incomes.

Ruth Jacob, the charity’s policy expert at the charity, urged the Government to act.

She told the Telegraph: “We’re already seeing a severe shortage of affordable homes to rent for people on the lowest incomes and that’s already leaving more and more people at risk of homelessness.”

Landlords who are leaving the sector are also said to be worried about the prospect of section 21 being abolished which would make gaining possession of a rental property more difficult.


Immigrant requirements to rent? Landlord News, Latest Articles, Lettings & Management

Hello, Apologies for this rambling query.

Background: My daughter has landed a permanent job at Cambridge University and is about to immigrate to the UK (we are South African). She is a director and shareholder of our small BTL company registered in the UK.

The company currently owns 3 houses in the North East and has no mortgage (all were bought for cash).

Q1. Apart from the necessary work visa and the right-to-rent, are there any other documents required?

Q2. She plans to rent outside Cambridge (e.g.Ely). She will have sufficient funds to pay a deposit and the first month’s rent, but not much extra, and will not have started earning a salary in the UK (she currently freelances via the internet).

Would a landlord consider her shareholding as sufficient cover instead of a guarantor?

Thanks in anticipation,
Mike


Landlords pay up to 7.7% more for BTLs in high demand areas Buy to Let News, Landlord News, Latest Articles, Property Investment News

Landlords looking to reduce void periods by investing in a buy-to-let within an area of high rental demand will pay an average of 6.2% more for the pleasure, research reveals.

The latest market analysis by mortgage experts, Revolution Brokers, looked at the average price for a buy-to-let investment in England and how this differs between areas with, and without, a high level of rental demand.

The figures show that investing in a high rental demand area will set you back £396,349, on average, across England.

This is a 6.2% premium compared to areas of lower rental demand, equating to an additional £23,000 on a landlord’s initial investment.

Reduce the potential of a void period between tenancies

Landlords can expect to pay the most in the South West to reduce the potential of a void period between tenancies.

At £345,908, the cost of securing a BTL property in a high rental demand area is 7.7% more compared to those in areas with lower levels of rental demand.

The East of England and North West are also home to some of the highest property price premiums for a high rental demand investment at 7.3%, followed by the South East (6.2%) and London (5.8%).

Even in Yorkshire and the Humber where this premium is at its lowest, it will still cost the average landlord 3.5% more to secure an investment property within an area of high rental demand.

‘Investing in a buy-to-let’

Almas Uddin, the founding director of Revolution Brokers, said: “When investing in a buy-to-let, the initial cost of your investment is often one of the most influential factors in the decision-making process.

“Not only do you have to be able to fund the purchase itself, but the sum spent upfront has a direct impact on the yield you will be able to return.”

He added: “However, the secondary factor is the rent you are able to generate and the consistency at which you are able to secure it.

“In high demand rental areas, not only will you be able to justify a higher rate of rent, but you will also benefit from a far lower level of void periods.”

‘Minimising void periods is an incredibly important part’

Mr Uddin continued: “Minimising void periods is an incredibly important part of maximising your investment as you can have the best yield in the world, but if you can’t fill the property with a paying tenant it doesn’t count for much.

“So, when looking to invest, landlords should always do so with a long-term view of a property, not just how much it costs, but what they can expect as a return and how easily can they rent it in the first place.”

He added: “With this in mind, paying a premium to secure a home in a high rental demand area may come at an initially higher cost, but it can pay dividends further down the line.”


Increased mortgage stress tests will push up rents, MPs told Buy to Let News, Landlord News, Latest Articles, Mortgage News, Property News

Not only will rents rise but tenants will find it more difficult to find homes over the next year or two as landlords will be struggling with higher mortgage rates, MPs have been told.

At the Commons Treasury Committee, a range of mortgage experts told MPs about the state of the market and what will happen with higher interest rates.

One of those giving evidence was Ray Boulger, from John Charcol, a mortgage broker, and he said that landlords will become reluctant to invest in buy to let properties and this will lead to a ‘serious impact’ on the availability of properties to rent over the next year or two.

He told MPs in the one-off topical session that the situation was acute in the south-east and in London.

Aftermath of former Chancellor Kwasi Kwarteng’s mini-Budget

The Treasury hearing follows a sharp rise in fixed-rate mortgage rates over the past year and a big rise in the aftermath of former Chancellor Kwasi Kwarteng’s mini-Budget in September.

Mr Boulger also said that the BTL market would see more stress than in other sectors of the mortgage market with some landlords finding it more difficult to secure a mortgage of more than 50% of the property’s value.

He explained that for landlords who are coming off two- or five-year fixe deals after September’s mini-budget face the prospect of seeing the interest rate on products rise from around 2%, to around 6%.

He added that most landlords paying interest-only buy to let mortgages have seen their monthly repayments rocket by up to 200% – compared with 50% for owner occupiers who have repayment mortgages.

Mr Boulger also explained that lenders had been conducting stress tests on landlords at interest rates of 6.75% but were now doing so at 8%.

He says that this change in criteria is making it more difficult for a landlord to find finance.

Affect a renter’s ability to find a home

It is this issue that will affect a renter’s ability to find a home, he told MPs, but will also affect the rent they will have to pay.

The director of mortgages at UK Finance, Charles Rowe, also gave evidence and revealed how the mini-Budget had led to many mortgage products being withdrawn by lenders so they could re-price them.

Nationwide’s chief finance officer, Chris Rhodes, told the hearing that the housing market outlook was ‘very uncertain’.

The building society had, earlier this week, revealed that house prices in the UK fell in October by 0.9% when compared with September. That’s the first monthly fall they have recorded in 15 months.

‘Buy to let will be loss-making’

He told MPs that for most landlords buying property now that ‘buy to let will be loss-making’ because landlords who are coming off 2% fixed rate deals, will now be paying 5%.

The technical director at the brokers Private Finance, Chris Sykes, told the hearing that there have been ‘significant changes’ in the BTL market and a higher rate environment.

He explained that the market has become tougher for landlords, and many will find that their business model is not viable in a high-rate environment and tougher legislation.

Mr Sykes also warned that with landlords having to pay tax on rental income – if it is owned in their personal name – they will need to put up rents to cover their mortgage payments.


85% LTV at 110% interest cover Buy to Let – InterBay Commercial Buy to Let News, Landlord News, Latest Articles

InterBay Commercial part of OneSavings Bank plc group have introduced a new Buy to Let range and of real interest for the market is an 85% Loan to Value product stress tested at 110% interest cover on the pay rate.

This means that the amount you can borrow  is worked out by the monthly rental income needing to be 110% of the monthly interest only payment subject to the 85% maximum LTV.

E.g. max loan = monthly rental income x 12, divided by pay rate %, divided by 110%

Therefore in this example: max loan = rent x12, divided by 6.1%, divided by 110%

or as an easy calculation max loan = monthly rent x 178.83 (this is very competitive considering the high 85% LTV)

The product:

  • 6.1% Libor Tracker = 3 month Libor (min rate 0.75%) plus 5.35% for the term
  • Maximum 85% LTV
  • 2% arrangement fee (additional 1% fee if loan below £75,000)
  • HMOs and New build flats maximum 75% LTV
  • Interest Only available up to a maximum 10 year term, but available for longer with a 0.5% rate loading
  • Early repayment charge 3% for first 5 years and 1% for the life of the loan
  • Minimum 2 years BTL experience (no First time landlords)
  • Available to individuals, limited companies, LLPs and Partnerships
  • Max loan size £1million

This now gives an alternative for Buy to Let investors at 85% LTV if your circumstances do not fit criteria for Kent Reliance who offer a similar product at 4.89% two year discount, with a 2.5% fee and you can borrow 192 times monthly rental income. However the reversion rate after 2 years is currently 6.58% so may not be as good value over a longer term if rates stay low.

I have been told that Interbay use a more flexible commercial approach to Buy to Let lending which could be an advantage in more complicated situations.

InterBay Commercial will only deal with authorised introducers and not the general public.

For assistance with this or any property finance requirements please, call us on 01603 489118 or email info@property118.com

If you would like to add your own requirements and search for the most popular available Buy to Let products please click here interbay commercial


Residential mortgage but renting the property without consent! Latest Articles

Hello readers,

For the last 3 years I’ve rented my flat on a residential mortgage whilst simultaneously living in a rented house. This is because of a change of a job which meant I had to move. I however couldn’t sell the flat due to negative equity. The flat contains roughly 15% equity and I have some savings.

I’m aware that I shouldn’t have done this, but the alternative was to default on the mortgage.

I want to get this sorted ASAP because it is now giving me sleepless nights. My options are therefore:

1) My current tenant has expressed some interest to buy from me, but lacks savings. I could therefore pay his deposit on a mortgage for him

2) Look for a BTL – this would need to be between a 75% to 80% LTV! ideally 80%, which seem difficult to get because I’m renting myself

3) Bury my head in the sand and hope that my mortgage provider doesn’t find out.

2 is probably the most likely outcome. If I did choose 3, if they did find out, would this make it difficult for me to simply switch to a BTL with someone else, should my mortgage provider call in the mortgage?

Many thanks Darren underthecosh


Mortgage Express Harsh Realities re Mortgage Arrears Latest Articles

It would appear that Mortgage Express are now operating a zero tolerance policy on buy to let mortgage accounts which fall two or months into arrears.

In recent months I have heard of several landlords who feel hard done by.

After just two months of mortgage arrears have accumulated Mortgage Express have called in their loans. Repayment of arrears does not appear to save people at this point. It’s too late! Mortgage Express have called their loan in and that’s their right to do so. Mortgage Express will happily accept payment for the mortgage arrears but they are not legally compelled to reverse their decision on calling in their mortgages. Some lenders are more tolerant but tot Mortgage Express it would seem. They have their instructions and they are sticking to them. Their objective is to recover as much money as possible – END OF STORY!

In the examples I have seen Mortgage Express has called in LPA Receivers to collect rents until such a point as tenants can be evicted and the property is then sold. Any surplus of sale proceeds over and above the mortgage and accumulated costs is then offset against any other Mortgage Express accounts which are also called in under their rights to consolidate. Once all Mortgage Express accounts are cleared any surplus balance is then returned to the borrower. However, in all of the cases I have seen to date there has been a deficit and Mortgage Express have then pursued this too, in many cases leaving their former borrower with little if any choice other than to consider personal bankruptcy.

Mortgage Express Harsh Realities

I have been asked by several borrowers whether I would be prepared to fight this for them. Whilst I think the situation is particularly harsh on both borrowers and tenants, now that I understand what is actually happening here I cannot see that anything illegal is being done by Mortgage Express.

It’s harsh but apparently it’s what all Mortgage Express buy to let borrowers signed up to.

The message therefore is do not fall into arrears on your Mortgage Express accounts.

It seems clear to me that Mortgage Express are now coming under massive pressure to call in mortgages which are in default. In my cynical opinion, that is the only reason they want to meet with their borrowers. It’s a fact finding exercise whereby they present opportunities for their borrowers to admit to being in default, other than for mortgage arrears.

My advice to all Mortgage Express borrowers is to read your terms and conditions very carefully and to follow them to the letter. If Mortgage Express want a meeting then ask them to confirm in writing what gives them the their rights to insist on a meeting and immediately seek professional advice. Also remember that if your tenants don’t pay you that’s not an acceptable excuse for not paying your mortgage. In fact, there is NO acceptable excuse I can think of other than Mortgage Express not taking payment. Therefore, if you haven’t got a decent liquidity fund I strongly recommend that you fully reference your tenants and purchase insurance against the risk of your tenants not paying your rent.

If it makes you feel any better the latest take on the word Gangsters in Banksters!


Property Research Tool Latest Articles

UK Property Research Tool
What you need to know and where to find the information

This Property Research Tool is for the benefit of all property buyers, landlords, tenants, owner occupiers and professional advisers associated with property.

Thanks to business sponsors and Property118 Members for their incredibly generous donations making the development of this Property Research Tool.

Property Research generally begins online

Far too many people fall into the trap of not doing proper online research, they see a property they fall in love with or meet a sales person they trust and the deal is done. For those of us who have learned our lessons the hard way, it still takes a long time to wade though websites to complete thourogh due diligence. The really annoying part for me was finding each website individually and then having to enter the same postcode into each one over and over again to find the right pages. For these reasons I wanted to have a system built as a convenient Aide-mémoire (check-list) for every internet user to be able to use and to provide access to to the websites containing vital information with the minimum number of clicks. Property Research Tool

Essentially the Property Research to is a pop up page, called a modal, which consolidates key information used by landlords and other property purchasers to assess properties. Any website can incorporate this technology free of charge. The functionality works best with Google Chrome and Safari internet browsers.

The only data input for users is the Post Code of the area. The key benefit is the ability to access all information required to complete desktop due diligence without having to remember visit multiple websites, thus saving considerable time and effort. The information is called from several websites which provide insight into the location being searched.

Enough of me trying to explain what it is, why not see for yourself?

If you run a website yourself why not write a review and grab the embed code to install the Property Research Tool functionality on your own website? We even have a widget which creates a “call to action” button (like the one below) which you can size to your requirements.

Want to learn even more?

My buy to let property investment strategy is documented and constantly updated in the Advice section of this website. To get back to the main menu >>>

 

Landlords Buy to Let Property Investment Strategy


Kent Reliance Buy to Let no minimum income and 85%! Buy to Let News, Landlord News, Latest Articles

Kent Reliance Buy to Let have withdrawn their minimum income criteria of £25,000 even for 85% Loan to Value.

However this does not mean there is no criteria as a borrower would have to demonstrate a “reasonable” income and be able to prove it with payslips or 3 years accounts if self employed ie this is not non status.

It does mean that if an application stacks up on rental income and the borrower looks like they will be able to afford their ongoing commitments then Kent Reliance will consider the mortgage rather than just declining straight away as before if income was even £1 below 25,000.

To get figures and check how much you can borrow on Kent Reliance Buy to Let 85% LTV products you can use our Mortgage Calculator and quote engine.

Andrew Ferguson who is Head of Sales and Distribution for Kent Reliance, said “we have become increasingly confident in the BTL sector and having examined the way in which our book has performed, allied to the growing evidence of the strength of the rental market, we felt that insistence on a minimum income requirement was becoming less and less relevant as a measure of affordability. We shall however keep it under review.”

85% LTV Products:

  • 4.89% 2 year discounted variable rate, 2.5% Product fee and No Early Repayment Charges. Reverts to SVR currently 6.58% (ouch!)
  • 4.99% 2 year fixed, 2.5% Product fee and 4% year 1 and 3% year 2 Early repayment penalty. Reverts to SVR currently 6.58%.

The amount you can borrow on both of the above products is Stress Tested at 125% interest cover on a Notional rate of 5%. In short that means you can borrow 192 times the monthly rental income.

Lending Criteria:

  • Minimum Property value £75,000 or £250,00 for HMOs
  • No more than 20% exposure in any one block or development
  • Maximum of four properties on one Freehold
  • Studio Flats minimum of 30 square metres
  • HMOs maximum of 8 beds
  • Student properties maximum of 6 beds
  • Limited company applications accepted, but must be a Single Purpose Vehicle.
  • Flats above commercial will be considered except where above noisy, smelly or out of hours businesses.

If you require any assistance with a Buy to Let mortgage or any type of property finance just give us a call on 01603 489118 or email: info@property118.com if we can’t get to the phone straight away and we are always happy to help or know someone who can 🙂Kent Reliance Buy to Let


Principality Buy to Let – new range starts with a 1.99% rate! Buy to Let News, Landlord News, Latest Articles

Principality Buy to Let have launched a massively improved new product range only available via brokers, but I have added them to our Buy to Let Mortgage Calculator and Sourcing system.

The Headline grabber is a 1.99% two year tracker BBR + 1.49% until 30/11/2015 with a maximum 60% Loan to Value and a 2.5% Product Fee. This also comes with a Free Valuation and Legals for a remortgage. Reverts to standard variable rate currently 4.99%.

This could be great value on a smaller remortgage, because of the percentage fee and free Val/Legals.

Other stand out products:

All including Free Valuations and Legals for a remortgage

2.99% Penalty free two year discount max 60% LTV, Product fee 1%

3.19% Two year discount max 70% LTV, product fee £999

3.49% Two year discount max 75% LTV, product fee £999

These are not high LTV products, but could be great value in the right circumstance, or you could even add the Castle Trust equity loan!

Standard Criteria for Principality:

  • Minimum Loan amount £25,000
  • Minimum Property Value £50,000
  • Minimum earned Income £20,000 or £30,000 for joint applicants
  • Maximum of 5 BTL properties with all lenders
  • Stress tested at 5.99% notional rate and 125% interest cover allows you to borrow 160.26 times the monthly rental income
  • Maximum age at end of term 69

For more information on the above products and to source a Buy to Let quote please Click Here

or if you need assistance and advice arranging a mortgage:

Email: Info@property118.com

Call: 01603 489118Principality Buy to Let


Shawbrook Bank – Definitely not for “brand new customers only” Commercial Finance, Latest Articles

Shawbrook Bank are now offering a 0.25% discount on the margin or a 0.25% discount in the arrangement fee for clients who have already been party to a completed loan with them.

This makes a very refreshing change from lenders who have traditionally only chased new customers with deals showing they realise the value in repeat business and loyal customers.

Big advantages they have over many other less specialist commercial lenders is their desire to lend with far less onerous stress testing compared to high street banks, Interest Only for commercial and BTL property and lending directly to Limited companies. I have been told many times by our own preferred brokers that they driven by common sense not bureaucracy looking for ways of saying yes to clients and not the often received “computer says no” answer from many lenders.

Shawbrook Bank lend on single investment units, portfolios, multi-units, HMO’s and student lets. They lend to both individuals and Ltd Co’s and do not limit the amount of properties that the client can own or the business activities of the limited company.

However they are not able to offer any direct customer advice or sales, and only accept business from intermediary brokers registered to their panel.

Along with their residential investment products they offer interest only mortgages up to 75% LTV and have a range of Commercial Mortgages and short term loans.

Shawbrook commercial mortgages:

Cover both commercial investment properties and owner occupier trading businesses. Their products go up to 75% LTV and they also offer interest only loans which improves business Cash flow.

Short Term Finance

Shawbrook offer market leading rates on short term finance from 0.65% pm with no exit fees for between 6 and 18 months. This is ideal for auction purchases or a speedy purchase in order to secure a discount.

Short Term Light Refurbishment Finance

Shawbrook will lend up to 70% of the purchase price at 0.73% pm for between 3 and 12 months. This is suitable for clients looking to purchase, or refinance a residential or mixed use property quickly, undertake light refurbishment and then either sell on or hold for rental.

Medium Term Refurbishment Product

They will lend up to 70% of the after works value on an interest only basis. This product is for clients that are purchasing or refinancing property with the intention of completing minor refurbishment before letting the property out.

Obviously there are many other lenders that may be suitable in terms of criteria or lower costs and it this is not meant to be an advert to only use Shawbrook, but it is great to see a lender valuing its existing customers.

For assistance with any property finance requirements please, call us on 01603 489118 or email info@property118.com

If you would like to add your own requirements and search for the most popular available Buy to Let products please click hereShawbrook Bank


Tax Treatment of Equity Loans for Buy to Let Landlords Advice, Buy to Let News, Commercial Finance, Financial Advice, Landlord News, Latest Articles, Legal, Mortgage News, Property Investment Strategies, Tax and Accountancy, Tax News

I have been posting on numerous forums about the introduction of equity loans into the UK buy to let mortgage market, a common question is the tax treatment.

Equity loans do not attract interest in the normal way, there are no regular monthly payments. One UK lender, funded by USA equity house JC Flower & Co. (a leading financial services investment company with funds in excess of £5billion) has entered the UK market and others may follow. Their return on investment is earned when the loan term expires or or sale or refinance of the property, whichever is sooner. Their return is capital plus a share in capital appreciation equal to double their investment. For example, if they provide top up finance of 10% of a property value their return with be 20% of the increased capital value plus their investment when the funding is redeemed.

As you may know, I was previously a former commercial finance broker. When I was practising I was renowned for digging into complex funding, tax and legal structures to explore opportunities and threats which others may never have considered.

Note to all – I no longer provide advice and this post must not be treated as advice.

The tax treatment of the redemption of BTL equity loans will be very interesting.

Let’s use this example. Equity loans can sit over and above traditional interest bearing mortgages but for the sake of simplicity I have based the following example on equity funding only.

Property value at outset £100,000
Equity loan at outset £20,000

Property value at sale £200,000
Capital gain £100,000 (or is it and if so how is it shared? – see below)
Equity loan capital repaid £20,000
Profit on Equity loan to lender £40,000

Now does the £40,000 profit on the equity loan to the lender reduce the owners capital gain to £60,000 or is the owners gain still treated as £100,000?

The lender operating the first of these schemes has already stated they will bill their return as interest at the point of loan redemption. However, that’s not to say HMRC will see it that way, only time will tell. Therefore, my suggestion to all landlords considering this type of finance is to plan for the worst and hope for the best in terms of tax treatment. As has been proven many times, the law says you can call something pretty much whatever you like but case law or legislation will determine what it really is. Case in point, advance rent or deposit? – see Johnson vs Old

So will profits made by equity lenders need to be used to offset rental profits? If so there could be a substantial paper loss created in the year of redemption. Unused losses may be rolled forward, assuming losses are made, but such losses are only offsettable against future rental profits. No problem, in fact potentially very advantageous, IF you continue to make rental profits going forward. However, if this was your only property you may be stuffed by having to pay CGT on the full £100,000 of gain and not being able to utilise the carry forward losses. Note that rental losses can not be used to reduce other taxable income.

I can’t see HMRC allowing landlords to choose how they apply the lenders return to suit their individual circumstances, i.e. as either interest or a share of capital gain,  but we can live in hope, not that that’s a good strategy of course! If HMRC do allow a choice to be made that would be utopia from a tax planners perspective 🙂

What I would suggest to all considering equity loans is that they should plan for the worst case tax scenario and hope for the best case tax scenario. In other words, make decisions based on the worst case tax scenario and if that works then fine. Obviously there are many other aspects of the deal to consider too which is why I am an advocate of taking professional advice as opposed to taking a short sighted approach and simply jumping into deals unadvised just to save initial fees.

If you are a portfolio landlord who makes good rental profits then treating the lenders return as interest could be extremely tax advantageous if the tax regime remains as it is today. This is because income tax rates are greater than capital gains tax rates for higher rate tax payers.

Therefore, for landlords who will continue to make rental profits, post redemption of their equity loans, this is particularly attractive in my opinion. At worst, if HMRC decide to treat the lenders returns as capital gains, landlords will pay a lower CGT bill and not be able to offset interest. For a landlords with no ongoing rental profits post redemption of an equity loan, having the lenders return treated an interest charge is highly unlikely to be attractive whereas having the returns treated as capital gains will be far better for them.

If, of course, your equity loan is secured against your private home then no CGT is payable on sale anyway.

Tax Treatment of Equity Loans for Buy to Let Landlords

Tax is not the only consideration.

I have listed 11 good reasons for considering the product and 9 downsides in my main post about equity loans. That’s not to say that everybody should think equity loans are the best thing since sliced bread just because my list of pro’s and cons is 11 vs 9, it doesn’t work that way. The reasons for NOT doing something can be very different to reasons FOR doing something, they are not necessarily like for like considerations. For example, I also prefer a strategy of high gearing combined with high liquidity over a low gearing strategy because that’s what suits me and my attitude to risk. It does not mean that people who prefer a different strategy are either wrong or right, it just proves we are all different, hence we have other preferences such as careers, holidays, cars, films, food and where we live.

For further information and discussion about equity loans please CLICK HERE.


Equity finance for buy to let landlords Advice, Buy to Let News, Commercial Finance, Landlord News, Latest Articles, Mortgage News, Property Investment News, Property Investment Strategies

Equity Finance for buy to let landlords

In this article I will explain the fundamental difference between equity finance for buy to let landlords and traditional buy to let mortgages facilities. Equity finance for buy to let landlords

Both are mortgages which are secured by a legal charge over a property.

Until recently, only traditional buy to let mortgage finance where interest or interest and capital are repaid monthly have been available. This type of finance is usually secured by a first legal charge over the property, also known as a mortgage.

Equity finance has tended only to be available to blue chip companies but that’s all changing. It’s now possible for landlords to secure equity finance on their buy to let property portfolio or even their own home and without even having to remortgage.

Equity finance doesn’t attract interest at all. In fact, there are no monthly payments whatsoever. Instead, the lender takes a stake in the capital appreciation of the property, typically at the end of the loan term or when the property is sold or refinanced. Additionally, equity finance can be secured by either a first or a second legal charge, hence it can be used as top up finance.

For further details please CLICK HERE


I Am A Property Developer – Ask Me Anything! Ask Me Anything, Latest Articles, Property Development, Property Investment Strategies

I run a small property development business in the Reading, Wokingham and South Oxon and Bucks areas.

The company organises planning applications on small sites of up to 4 flats or houses, then secures the financing, oversees the design and specification, and commissions and project-manages sub-contractors to do the actual construction. I also undertake whole-house property renovations and act as landlord when I rent out existing detached houses on sites where I am assembling additional land or sorting out access and planning issues. 

My tenancies are usually graduate houseshares/HMOs as I find these give a more reliable income stream than renting to a family.  I Am A Property Developer - Ask Me Anything

I moved into property development from being a BTL landlord as I felt the returns would be better – perhaps not the wisest of careers moves in 2007!

I am inviting Property118 contributors to “ask me anything” as regards small-scale property development if they are considering this as an additional aspect or future evolution of their rental business.

I don’t claim to be able to answer everything as property development is a very wide-ranging field and can be highly specific as regards local valuations and planning rules, but I will endeavour to help.


Venture Capital for Buy to Let Landlords Latest Articles

Until now it has not been possible for private landlords to access venture capital but times are changing.

Historically the only form of funding for buy to let investors has been mortgages, i.e. debt based finance where the returns for the provider comprise of fees and interest.

In the world of corporate finance it is common for business funding to comprise a mixture of both debt and equity finance.

Equity finance is different in that the provider makes a return by sharing profits, often when the business or asset is sold or refinanced. This form of capital is also know as mezzanine finance, private equity and venture capital amongst professional corporate advisers. Venture Capital for Buy to Let Landlords

A respected mortgage lender has now entered the  provide equity finance market and will be offering it’s products to private landlords. The lender will take a legal charge over rental property to protect their interests in much the same way as a traditional mortgage lender does, however, their charge will rank second to that of a traditional mortgage lender, thus enabling a mixture of debt and equity funding. A typical structure based will be:-

  • 65% debt on a traditional buy to let mortgage secured by first charge
  • 20% buy to let equity loan secured by second charge
  • 15% owners own funds

No interest or monthly repayments are made on the buy to let equity loan. The return for the lender comes when the property is sold or refinanced. The equity loan is repaid and the lender takes a 40% share of any capital gains. For example, if the property had increased in value by £100,000 the lender would take £40,000 of the profit plus return of capital. If the property had decreased in value the equity lender would still get their capital returned but would take 40% of zero profit, i.e. a zero return on investment.

For most buy to let landlords this very radical alternative to traditional mortgage financing alone will take some thinking through. There are pros and cons which I have thought through in quite some detail. For further details please CLICK HERE


BTL Second Charge Mortgages / No Monthly Payments Advice, Buy to Let News, Commercial Finance Broker Blog, Financial Advice, Landlord News, Latest Articles, Mortgage News, Property Investment News, Property Investment Strategies, Property News

No this is NOT a wind up, it’s 100% genuine and is important that you know how it works so that at the very least you can make an informed decision about new financing choices which until now have been unavailable to buy to let landlords.

It really is a fantastic way to improve cashflow and rental profits or increase gearing without the need to remortgage.

A very credible mortgage lender (Castle Trust) is offering second charge buy to let mortgages with no interest charges and no monthly payments based on 20% of value subject to both the first and second mortgage combined not exceeding 85% LTV on BTL deals and 80% on your own home.

You can use the money in whatever way you wish, for example:-

  1. You can use it to pay down existing mortgages
  2. You can save the money for a rainy day
  3. You can use the money to buy more property
  4. In fact, you can blow it all at the local casino if your daft enough too!

So what’s the catch?

With no monthly payments or monthly interest charged, the lender must get paid somehow. This product works with a profit share basis, in that you borrow 20% of the value of your property the lender will take 40% of any increase in value – on sale or refinance.

You will also need to obtain permission from your existing mortgage lender for a second charge to be added.

Given that your equity in the property may represent as little as 15% of the value of the property and you will receive 60% of the capital appreciation you don’t need to be Einstein to work out that it’s better to use their money than yours, especially if you use the extra money raised to purchase more properties. Remember, you will not be making any payment or incurring any interest whatsoever until you sell or refinance.

Imagine if somebody put this deal to you …. I want to buy a property, you put 20% of the money and I will put in 15% and borrow the remaining 65%. I take all the rental profit/losses and when we eventually sell the property I will get 60% of the capital appreciation and you will get 40%. Oh and by the way, I will decide when we sell, OK? You would probably say no wouldn’t you? Well if you put that deal to Castle Trust, chances are they will say yes providing you have a good credit rating. It really is that good.

Basic criteria

The loan term can be up to 30 years if the equity loan is secured against your own home, 10 years if it’s a rental property.

Your total LTV must not exceed 85% on a rental property, 80% if the loan is secured on your own home..

There are no limits on the number of properties the lender will consider lending on per borrower and their maximum loan exposure to any one client is £1 million.

The minimum advance is £10,000.

For rental properties there is no requirement to have a first mortgage.

You must be able to prove that you have been a landlord for at least six months to qualify and you also need a decent credit score.

Pros and cons?

I can see several reasons why this will be attractive to landlords and I will be using this product myself for the following reasons …

  1. Deals may not stack up on rent to ordinarily qualify for an 85% LTV mortgage but may do so on this basis
  2. It’s a relatively easy way to raise capital against the security of your existing rental portfolio or your own home
  3. Improved cashflow when compared to a conventional mortgage for a higher amount
  4. Raise money without paying off an amazing tracker or fixed rate deal arranged pre-credit crunch
  5. Avoid potentially extortionate fees associated with refinancing
  6. Increase borrowing without affecting cashflow
  7. Use of other peoples money to increase leverage and returns on capital invested
  8. Castle Trust do not legal or valuation fees to arrange finance on your own home and their arrangement fees are only 1% of the advance. Valuations on rental properties cost £195+ VAT and conveyancing costs £216. This means that total fees are likely to be significantly less than arranging a conventional remortgage.
  9. Some landlords will wish to borrow 20% LTV via Castle Trust to partially redeem their mortgage with another lender and thus benefit from improved cashflow.
  10. Some landlords will wish to utilise this product to borrow more money
  11. Some landlords will wish to mix and match, i.e. reduce existing interest bearing debt and increase overall gearing to 85% LTV

Downsides

  1. Your risk is higher than that of Castle Trust because they get paid back before you do on the basis they have second charge over the property. Therefore, if the property decreases in value then you carry the majority of the risk. However, unless you’ve come to the end of the loan term it’s up to you to decide when you sell, they have no say in it.
  2. Future remortgaging may prove more difficult
  3. No new build property, i.e. properties built in the last two years
  4. The product is only available on properties located in England and Wales (not Scotland or Northern Ireland)
  5. 40% reduction in any future capital appreciation but you do need to consider that you may well be able to use the money to make a better return elsewhere
  6. The improved cashflow, in comparison to an higher traditional mortgage, will increase taxable income. However, many will see that it’s better to pay tax on profit than to have no profit at all
  7. Early repayment charge of 5% in year one
  8. If you wish to repay the loan without selling the property then you are committed to proving Castle Trust a return equal to the greater of 2% per year for the period which the loan has run or 40% of the rise in property price
  9. You will need to contact your existing mortgage lender before progressing matters to establish whether they will allow a second charge to be taken

We have no idea how long this funding will be available for so if this is of interest we recommend you to get in quickly. BTL Further Advances No Monthly Payments

We will be arranging introductions to brokers on a panel of specialist advisers which I have personally hand picked. The role of the adviser will be to review your portfolio and provide you with bespoke advice and quotations based upon your personal circumstances.

We are also considering the demand for free of charge introductions to a non-advised mortgage packager service. However, unless you consider yourself to be a sophisticated investor and in need of no advice and associated protection we strongly recommend you to obtain professional advice from our carefully selected panel of advisers.

Obviously we want to make some money out of this too so we are charging a fee of for introductions to our panel of professional advisers. By charging for the introductions we, and the advisers we are referring to, recognise that only serious enquirers will progress matters. This is a good way to ensure that our advisers are not bogged down answering questions from time wasters and also provides a very a good reason for our recommended advisers to prioritise our referrals.

Our fee for arranging an introduction to a professional adviser, who will visit you to provide face to face advice if that is required, is £200, payable to Innovative Landlord Solutions LLP (the legal owner of Property118.com) either by credit/debit card or via PayPal. You will then be contacted within 7 days.

Professional Adviser Introduction Request Form

  • Fees are non-refundable


Shared Appreciation Mortgages for Buy to Let Landlords Advice, Buy to Let News, Commercial Finance, Commercial Finance Broker Blog, Financial Advice, Landlord News, Latest Articles, Mortgage News, Property Investment News, Property Investment Strategies, Property News

A radical shared appreciation mortgage product for buy to let landlords is soon to be launched.

The detailed criteria is yet to be released but we do have details of a product launched a few years ago by the same mortgage lender into the residential mortgage market. If we assume that the key features for the buy to let version will be similar, then landlords will be able to borrow 20% of the value of the property with no monthly payments or interest charges whatsoever against the security of a second charge. Up to a further 60% LTV would be able to be borrowed from a different mortgage lender which would take first charge.

In other words, you have to put down 20% deposit in cash on a purchase yourself and if you are refinancing, your total mortgage exposure (including the Shared Appreciation Mortgage), cannot be more than 80% of the value of the property.

Shared Appreciation Mortgages for Buy to Let Landlords

The mortgage lender offering this product (Castle Trust) is well funded via venture capital and is a credible and trusted lender. They only operate via an exclusive panel of mortgage packagers and their network partners.

The way Castle Trust will make their money is by sharing in any capital growth when the property is sold, or in 25 years, or when the borrower reaches age 75, whichever is the sooner.

The product for residential borrowers is based on the lender taking a 40% share in the growth in the value of the property whilst the owner takes 60%. Not bad considering each party is only putting in 20% is it? In fairness though, the property owner does carry the lions share of the risk as the shared appreciation mortgage provider is secured with a second charge.

As an example, based on a property value of £100,000 the figures would work as follows:-

  • Traditional mortgage £60,000
  • Shared Appreciation Mortgage £20,000
  • Owners equity £20,000

Now let’s assume the property is eventually sold for £200,000 – the following is what each party would get back …

  • £60,000 to the traditional mortgage lender (assuming it was an interest only loan and no fees were added)
  • £60,000 to the shared  appreciation mortgage lender (i.e. £20,000 original capital plus 40% of £100,000 growth)
  • £80,000 to the property owner being the balance.

In this example the property owner would quadruple his capital invested and only be paying interest on 75% of his total mortgage liability.

I can see several reasons why this may be attractive to landlords if the BTL product is similar to the version available to residential mortgage borrowers:-

  1. Deals may not stack up on rent to ordinarily qualify for an 80% LTV mortgage but may do so on this basis
  2. Improved cashflow due to only having to service interest on a maximum of 75% of the debt
  3. At 60% LTV many BTL mortgages are significantly more competitive
  4. Landlords will be able to increase their borrowing without affecting their cashflow
  5. Use of other peoples money to increase leverage and returns on capital invested
  6. Castle Trust will rely upon the mortgage valuation of the traditional mortgage lender. Therefore you only have to pay for one valuation.
  7. Castle Trust do not legal or valuation fees and their arrangement fees are only 1% of the advance. This means that total fees could be less than if you arrange a traditional mortgage for a higher Loan to Value.
  8. Castle Trust do not require the consent of a lender providing the first charge. Therefore, the product is technically available to any landlord with borrowings of 80% LTV
  9. Some landlords will wish to borrow 20% LTV via Castle Trust to partially redeem their mortgage with another lender and thus benefit from improved cashflow.

Downsides

  1. The property owner gives away a substantial share of any capital gain
  2. The improved cashflow, in comparison to an higher traditional mortgage, will increase taxable income
  3. Remortgaging may prove difficult
  4. The product is only available on properties located in England and Wales (not Scotland or Northen Ireland)

Questions I can’t answer yet

  • In the example above, has the property owner made a £60,000 capital gain or a £100,000 capital gain?
  • Which buy to let lenders will allow a second charge to be taken over the property for a new purchase?
  • Whether the BTL product will be a mirror of the residential mortgage conditions
  • There are also rumours of 85% overall exposure being offered

We are expecting to receive full details within the next few weeks and funds are expected to be limited. Therefore, if this is of interest we recommend you to get in quickly.

We will be arranging introductions to brokers on our panel of specialist advisers which I have personally hand picked. The role of the adviser will be to review your portfolio and provide you with bespoke advice and quotations based upon your personal circumstances.

The fee for arranging an introduction is £200, payable to Innovative Landlord Solutions LLP (the legal owner of Property118.com) either by credit/debit card or via PayPal. You will then be contacted within 7 days of the product being launched with a view to arranging a priority appointment.

To register please complete the form below.

Professional Adviser Introduction Request Form

  • Fees are non-refundable


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