Tag Archives: interest only

Barry’s story – it could have been you! Financial Advice, Landlord News, Latest Articles, Property News

Barry’s story was written by the Mark Alexander back in December 2010. It has since been updated and re-published several times. The dates, times and people are fictional but the story is based on real life events.

It’s a modern update of the classic “A Widow’s story”, this time written as a cautionary tale for landlords and their families.

Barry is 53 years old and married to Sharon. They have three teenage children; twin girls aged 15 and a 13 year old son. Barry worked as a self employed salesman in the plant hire business. Sharon had a part time secretarial job in a local school.

Barry and Sharon purchased their first investment property in 1996.

As property values have risen they have continuously remortgaged and used a proportion of the equity released as deposits to purchase additional rental properties. They also saved a proportion of the equity released for a rainy day. To accelerate the growth of their portfolio Barry and Sharon raised extra cash for deposits by remortgaging their home. The profits from Barry’s plant hire business covered the family’s commitments comfortably.

They had accumulated a portfolio of 23 properties with a combined valuation of £1,650,000, against which they had mortgages of £1,400,000.  The portfolio produces rental income of £87,000 per annum. Their rainy day fund amounted to just over £64,000. By having all of the above in place you might be forgiven for thinking that they had set themselves up with a very safe future.

On Sunday 21st December Barry had a bad day. He was on the way home that evening having just been out to fix a tenants leaking shower tray when the traffic on the M6 came to a grinding halt. Barry managed to stop his car, avoiding the lorry in front of him, but the car behind him ploughed into the back of him, wedging his car under the back of the lorry.

The emergency services managed to free Barry from the wreck and his only damage was shock, whiplash and major bruising to his legs. However, two days later Barry collapsed whilst out shopping for last minute Christmas presents. He was rushed to hospital where it was discovered that a blood clot in Barry’s leg had passed to his brain. Barry had suffered a major stroke.

He lost his speech and most of the use of one side of his body. The family were in tatters. Sharon had to give up work to care for him.

Up until having a stroke Barry had managed the property portfolio and taken care of most of the maintenance himself. Could Sharon care for her husband, her family and the management and maintenance of the property portfolio too?

They considered putting the properties on the market but soon realised that after deducting selling costs and CGT there wouldn’t be much money left over. They would also lose their income and they would be leaving their tenants in a difficult predicament too. Sharon has had to employ a lettings agent to manage the portfolio. Since then it has cost the family an average circa £3,000 a month to pay for ongoing maintenance and management.

Fortunately there has been some good news, at least financially. First, low interest rates have meant that Barry and Sharon’s mortgages have got much cheaper than when they started their property rental business. Many of their mortgages have reverted to tracker products due to their fixed rates coming to an end. They are focussing on Barry’s recovery. What will happen when interest rates go back up again though? How will the restrictions on finance cost relief for individual landlords affect them?

The real saviour for the family has been insurance. Fortunately, Barry and Sharon were astute enough to insure against these eventualities. They took out life assurance policies that pay out a regular monthly income right up to Barry’s 65th birthday. These policies were written on the basis that they also pay out in the event of a critical illness. The family are therefore confident that these provisions will see them through these troubled times and out the other side. They will then revert to plan A, which was to live off surplus rental income over and above the mortgage payments on their portfolio or to sell the properties and live off their gains.

What insurance provisions have you made for your family?

How are you investing the windfall of increased cashflow that record low interest rates have produced for your family?

Have you made similar provisions to Barry and Sharon?  If you haven’t it may not be too late, we want to help.  If you have already taken advice and put insurances into place we would like to introduce you to one of our recommended advisers to review your policies and ensure they are competitive. Most important of all, to ensure that the right person gets the right money at the right time.


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


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

  • Price: £ 200.00
    Fees are non-refundable


Newbie Questions re Capital Repayment Latest Articles, UK Property Forum for Buy to Let Landlords

I would really appreciate some input having read though the “Advice” articles here.

I currently own my own home outright without a mortgage. I was thinking of remortgaging to release some equity which combined with a small pot of cash I have available could be used as deposits on two small BTL properties (in the region of £140-£150k each). I have actually had a mortgage agreed in principle by my bank in order to do this, being totally upfront about what I am remortgaging for. The LTV is low, circa 35% and they have no problem with it.

My question relates specifically to whether to have this remortgage aspect on a capital repayment mortgage or interest only? I was intending to have the remortgage element on capital repayment and any BTL mortgages on interest only (BTL mortgages would have LTV of close to 60% in order to take advantage of good rates I have been offered, again by my bank).

Having now read your article I am now doubting this approach is correct, I was wondering that your thoughts were?

My goal if that is helpful is focussed on longer term, pension planning planning.

Any steer would be gratefully received. Newbie Questions re Capital Repayment

Thanks

Helen


Does my Buy to Let lending criteria make sense? Buy to Let News, Guest Articles, Guest Columns, Landlord News, Landlords Stories, Latest Articles, Mortgage News, Property Investment News, Property Market News, Property News, UK Property Forum for Buy to Let Landlords

While fully acknowledging that I am not a financial specialist I do know the residential property market. I have a proven track record of making money from letting property for 40 years. In my first book, which I released just a few months ago, I venture to give my opinion of the criteria I would apply if I were lending my money to a person who wanted to buy property to let. Does my Buy to Let lending criteria make sense

  • Does this person know the law and regulation related to the business, has he taken the trouble to become accredited through an education based scheme.
  • Has this person got sufficient funds, borrowed or otherwise, to bring the property up to the Decent Homes Standard, or higher if the market demands, and to meet all the legal requirements before the property is let
  • Has this person done the homework, is there a market for the property he is proposing to let in the area where he is proposing to buy.
  • Is there any regulation in place that the landlord is not aware of, Article 4 Directions, Selective Licensing, planning controls, lease restrictions etc
  • Will the property return a positive cash flow that will pay the loan, keep the property up to standard, pay Agency fees (if the property is going to be managed by an Agent), Pay on-going letting fees/marketing costs and leave a margin for rent arrears and the cost of removing a tenant if necessary
  • Does this person know how to legally remove an undesirable tenant and the length of time this might take and has he got the financial safety net to cover the loss of income during this period
  • Is this person a member of an organisation that will supply the correct documents and support to sustain the tenancy
  • Has this person got a system in place to ensure that he remains legally complaint at all times thus avoiding expensive litigation which may result in large fines, rent repayment orders for up to one years’ rent or up to 4 times the tenants deposit etc.
  • Has the person got Rent Guarantee Insurance, Public Liability Insurance, Landlord Property Insurance and (if the property is furnished) contents insurance
  • Does this person intend to manage the property himself or does he intend to employ a Letting Agent. If he does intend to employ a Letting Agent how will he choose a good Agent, who has Client Money Protection, and is he aware that he cannot devolve his legal responsibilities to that Agent
  • Has this person made provision to re-pay an interest only loan should the property value decrease

Are Banks aware of these important issues or are they making a risk assessment purely on FCA guidance and criteria without taking in to consideration the “real” risks of  investing in property to let?

Do you agree with me or am I missing the point?

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>>http://www.amazon.co.uk/dp/1484855337


I’m a mortgage tart! Latest Articles, UK Property Forum for Buy to Let Landlords

The government wants the banks to clamp down on interest only mortgages. Obviously there are tax advantages for these mortgages with BTL properties but can someone explain this situation on our own home mortgages: I always change my home mortgage every 2 or 3 yrs to take advantage of low introductory rates. Now as I see it you don’t really start to pay down the capital of a standard mortgage for several years. If I didn’t have an interest only, then by chopping and changing I’d be paying a highly monthly payment but not seeing a reduction on the overall balance. Does my Buy to Let lending criteria make senseI'm a mortgage tart

I’d like to come off int only mortgages but I’m not prepared to move onto the banks standard rate once the deal is over. We have a huge amount of equity in our rental properties so I’m not worried about being able to pay off our home loan once we choose to so.

Can someone tell me if I’m talking nonsense or how to get around this situation.

Thanks

Gillian


Our own Buy to Let Mortgage sourcing system and calculator Buy to Let News, Latest Articles

I have just finished updating all the products on our own in house Buy to Let Mortgage sourcing system and calculator. This takes quite a bit of time, but it is definitely worth it and I wanted share with readers what it can do as it is our own in house design specifically based around the needs of property investors.Buy to Let Mortgage sourcing system and calculator

The first Key inputs are:

  • The Value of the property or Purchase Price
  • The amount you want to borrow
  • The Rental income pcm

This will then work out if the rental income is enough for every lender and product on the system to agree a Buy to Let mortgage. This is called Stress Testing and is commonly worked out (but not always) by the rent covering the interest only mortgage payment by 125%.

It will also consider the amount you want to borrow against the value of the property as a percentage. This is called Loan to Value and some products or Lenders will vary from 50% LTV to 65%, 75%, some up to 80% and even one still at 85%

Another factor from these figures are the Lenders’ maximum and minimum loan amounts (most lenders will not lend below £25,000) and also minimum property values ( most lenders will not lend on a property below £40,000 and some higher).

Other key inputs are:

Income – many lenders have a minimum income level for applicants although this does not affect the loan amount as it is based on rent.

Preferred rate type Fixed or Variable – Do you want it to search for products where the interest rate will remain the same for the term of the product or are you happy to take the risk of a rate that may change up or down. The system will then only show results for the type you choose (although you can easily change your mind).

You will then get a list of results (see below) which will show:

  • A list of the available products based on your criteria
  • Interest Rate
  • Product term
  • reversion rates
  • Fees
  • Early redemption penalties
  • How the Stress testing is worked out ie the amount you can borrow for every £1 of rent pcm
  • If you could borrow more how much you can borrow as a maximum and get a quote based on that figure

Buy to Let mortgage search results

Then just click on the Get quote Link for the loan requested or the maximum possible loan.

You will then get an full illustration of the product you selected along with a financial summary showing:

  • The interest only Buy to Let mortgage costs per month
  • A table showing the Capital and Interest Buy to Let mortgage costs per month
  • The minimum amount the rental income would need to be for the loan requested
  • Yield (i.e. annual rental income expressed as a percentage of property value)
  • Rental Return on Equity Invested (net of mortgage costs)
  • The LTV (i.e. the loan expressed as a percentage of valuation) is

And much more see below:

Buy to Let mortgage Illustration

You can find The Buy to Let Mortgage sourcing system and calculator under our Finance tab see below or CLICK HERE to start your search

Buy to Let mortgage tab

 

 


Age discrimination from buy to let mortgage lenders? Latest Articles, UK Property Forum for Buy to Let Landlords

Last year I was in the process of identifying a good interest only re-mortgage – nothing out of the ordinary – just over 55% LTV; bags of rental cover, clean title and excellent credit score – By the time I was ready to move I had reached 70 years of age and all of a sudden every option on the high street fell apart because of it.

The CML office told me it was unlawful for their members to discriminate in this way and that they shouldn’t do so; but in the next breath said they had no control over their members on this matter and couldn’t (most likely wouldn’t) say where to complain to

I eventually had to resort to a commercial mortgage where everything is substantially more expensive with no freebies like valuation; legals, etc.

I think I understand how this scenario came about (viz. on the back of Central Gov’s fear of a interest only bubble in the residential market) but for it to cross overto BTL is sad and of course discriminatory.

By the way, I’ve been a Landlord for over thirty years (12 tenancies) – do everything myself; never had to evict; and seldom had a problem with arrears (touch wood)

Cheers

Mike Jones Age discrimination from buy to let mortgage lenders


Buy to Let Mortgages on Low Value Properties Advice, Buy to Let News, Financial Advice, Guest Articles, Guest Columns, Landlord News, Latest Articles, Mortgage News, Property Investment News, UK Property Forum for Buy to Let Landlords

I have always found one particular lender on our panel hard to consider as they’ve always represented (in my mind) the last resort lender. As 99.99% of my clients are prime, own ‘standard’ properties, have sufficient income and mortgage amounts, this lender has never really been on our radar.

However, the enquiries which I have been getting stuck on just recently have been for properties valued at less than £40k. Only one or two lenders will consider these but the hoops you have to jump through rule out the majority of those enquiries.  And of those that can be agreed, we’re still only talking about valuations of £39k or £38k anyway.

However, I had a call today from this, shall we say more “adventurous”  lender and they told me of their updated proposition.  It’s not cheap, but you have to ask .. compared to what?  I mean, if there is no other choice, then actually they are the cheapest because there is no other option.

They will lend as little as £3k, they have no minimum property value, they told me they have completed on properties of £25k value! Thereforeif any investor has such properties in mind and they don’t want to use all their cash to purchase, they can – via us of course!

The deal allows up to a possible maximum of 60%LTV, which includes the lenders fees, so only a 40% “ish” deposit is required.  And on a £35k property, that’s only £14k outlay.

This particular lender is for when all other lenders say ‘no’.  i.e. this is not a like for like comparison, and mustn’t be treated as such, but this is a deal for when there are no other options available.

For example

  • property purchases or remortgages for properties valued at less than £40,000
  • credit impaired applicants
  • non standard construction including bungalows, high rise, defective, ex-council & semi-commercial properties
  • Micro Mortgages from £10,000 – £30,000
  • Shared Ownership available up to 100%
  • many income sources accepted – employed, self-employed, DWP, pension income, companies trusts and funds

Now, don’t get me wrong, this is not a ‘cheap as chips’ range of products that you might get from a traditional BTL lender, but it is, however, a BTL deal that you can get when no-one else will lend!

For example

  • purchase price of £38,000
  • net mortgage advance £20,750
  • initial monthly mortgage payment £232.31 on a repayment basis (i/o payments only allowed on loans above £25k)
  • interest only on BTL 25 year term mortgage basis
  • interest cover at 120% of pay rate

Who does this work for?

It doesn’t have to be an ‘extreme’ example of all factors as detailed above to qualify.  For example, if you are a traditional BTL landlord who owns, or has seen an opportunity to own, a property of less than £40,000 in value (most won’t go less than £50,000 as we know), then this product allows you to buy / own unlimited properties … without having to use 100% of your own cash to buy them!

And the benefit of that?  You can buy more!

Every deal is on a case by case basis and is manually underwritten.

Useful info;

  • Properties must be let on an AST basis
  • Available in England, Scotland and Wales
  • Minimum age 18, maximum age 80
  • ERP’s during 1st 3 years at 4/3/2%, then 1% thereafter

Summary

When no other lender will say yes, there are deals available throughout England, Scotland and Wales from a long established BTL provider who likes to say yes.

If this is of interest and you would like to have a chat please leave a comment below or see my member profile – linked at the top of this article.

Regards

HowardAdventurous Buy to Let Leting


BuytoLet Remortgage rates best since the credit crunch Buy to Let News, Landlord News, Latest Articles

The prevailing mood in the BuytoLet remortgage world over the past three or four years has been “Rates are high; criteria are being squeezed; fees are high” – so it’s not been considered financially viable to remortgage.

Therefore Landlords have settled down and put raising equity or just remortgaging for rate to the back of their minds.  As this period of natural stagnation has continued, it has reinforced the mood of doing nothing in many landlords’ minds.

If you have built or increased your portfolio in recent years, it is worth regularly reviewing your assets. A quick look at a range of BTL lenders current SVR’s, reveals rates at 4.5% at best, and some as high as 6.58%!

However, things have changed over the past 4 or 5 months, and there are some really competitive rates around. So what should you be paying? What about the fees? Of course, not everyone would qualify for the products below. The usual Terms and Conditions apply etc, but for the many BTL borrowers that would qualify, here is a selection of currently available products concentrating on low lenders arrangement fees.  All are at 60%LTV, with the exception being the last example, which is at 65%.

The following example products show:

Rate Type – Lenders Fee –  Savings vs SVR at 4.99%  on a £100,000 interest only mortgage over 24 months

Sub £300 Arrangement Fee
3.59% Discount for 2 years – Lenders Fee £99 – Saving  £2,800
3.74% fixed for 2 years – Lenders Fee £0 – Saving £2,500

Sub £1000 Arrangement Fee
3.29% Tracker for 2 years – Lenders Fee £999 – Saving £3,400
3.39% Fixed for 2 years – Lenders Fee £995 – Saving £3,200

Fees Free (standard legal package and free valuation), Low Arrangement fee
3.65% Tracker for 2 years – Lenders Fee £495 – Saving £2,679
3.59% Fixed for 2 years – Lenders Fee £500 – Saving £2,800

Of course, there are other fees associated with a remortgage, but as you can see, even after they have been paid there is a positive net saving. Despite the above being available at 60/65%, there are many other rates at higher LTV’s that may be suitable for you, and there are BTL deals available up to 85%.

If you need any assistance and to ensure that you receive the very best advice, service and rates please complete your details below and we will have one of our preferred BuytoLet mortgage brokers give you a call.

Contact Howard Reuben

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