Tag Archives: LTV

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Case Study - No Money Down - Full transparency

We’ve all heard of those ‘no money down’ schemes (mortgage fraud scams) where a ‘property sourcer’ has negotiated a discount and the buyer and his friendly mortgage salesman gets a mortgage based on the normal market value.  Many were very active in this market, some still are, however ……

….. what is not so widely reported – mainly because the shrewd investors who use the following strategy don’t normally shout about it – is the ‘cross charging’ 100% capital raising process which allows for the full purchase price, refurbishment costs and subsequent buy to let remortgage (if keeping the property) all to be arranged in a transparent and legal process, often all with the same lender.

How do I know about this?

Because we’re doing it, and I have a case study to share with you …

Case Study for a 1st and 2nd Charge combined arrangement

Our client required a deal they couldn’t get via their usual high street lender. He was looking to buy a property, renovate and then take out a BTL based on its new and improved value.

Crucially, and the main issue that nearly caused him to lose this opportunity, is that he was also limited in the cash required to secure this deal, although he had a good level of equity in his main residence.

Our client ideally needed to borrow 100% of the purchase price and 100% of the renovation costs using the equity in his home as additional security. Once renovated he wanted a quick solution in changing the bridging loan into a BTL.

  • Our client owned his residential property with a value of £600k
  • Mortgage outstanding £300k with Halifax
  • Purchase price of the property currently worth £150k
  • Refurbish costs £40,000 – Renovation including new kitchen and bathroom
  • Total borrowing required £190k

The solution?

First, to borrow 75% of the new purchase which gave him £112.5k

Second, the shortfall of £37.5k towards the purchase and the additional £40k needed for the renovation works (£77,500 in total) was raised by adding in the additional security via a 2nd charge on the main residence.

He was actually offered a 2nd charge bridge on his residential property up to 70% LTV, which meant he could, if he wanted to, raise up to £120k from this property (70% = £420k, his existing mortgage is £300k), far more than enough to make up the required difference (£77,500) to cover the full 100% of the purchase and 100% of the renovation costs.

The valuer was booked to attend the property within 72 hours.  In the meantime our client was quick in supplying the shopping list of requirements required and forunately instructed a solicitor who understood the speed required for a bridging loan. The deal was completed within a few weeks enabling our client to ‘do up’ his new property, increasing the value to £300k.

Three months later our client was able to change the bridging loan product to the lenders BTL product, releasing 75% of its new improved value. This released £225,000, enough to pay off the bridging loan and put some money back into his cash flow.

This is the intelligent, new improved, ‘no money down’ style of investing and refurbishing which is helping many savvy investors to add property to their portfolio without laying out any of their own liquid cash.  Instead, they are letting their own existing bricks and mortar do that for them.

We are now very closely associated with a leading and award winning bridging loan / short term lending packager who specialise in these cases.

We have a very simple enquiry / AIP process and as highlighted above, cases can be processed very quickly indeed.  In this case, after 12 weeks of work, our client ended up with another property in his portfolio and also approximately £20k in cash (after fees etc) as well.

Could this be of interest to you?

Contact Howard Reuben

Mortgages, Commercial and Bridging Finance, Life Insurance, Wills, Trusts and LPA's
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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


Housing Bubble fears – genuine or an overreaction? Latest Articles, Property News

There has been a great deal of commentary in the press the last couple of days raising fears of a housing bubble.

Rightmove increased its forecast for the year from 4% to 6% leading to headlines calling for government to do something about concerns of a debt fuelled crisis in the housing market.

Yes prices are rising, but we are seeing sustained recovery for the first time since the credit crisis outside the economic microcosm of London?

It is this recovery for most of the country, in areas where prices have fallen or been static for a long time and not just one area, that has surely seen the forecast rise recently.

Rightmove report asking prices in London are up 8.2% on a year ago with:

West Midlands up 6.8%

South East  up 5.6%

Wales up 3.8 %

East Anglia up 0.8%

The North 0%

Yorkshire and Humberside fell 1.3%.

Overall in the UK asking prices are 4.5% higher than this time last year and have increased on average by £16,000 so far in 2013.

So the questionare:-

  • are we right to be worried?
  • what factors are involved
  • and can we do anything about it?

First of all we need to consider what is really causing prices to rise. Is it demand lead where we are all earning more money, unemployment is down and mortgages are easier to obtain?

Alternatively is it the lack of supply in new housing that is putting the upward pressure on prices?

In terms of industry sector contribution to GDP (Gross Domestic product – the output of the economy) it is the building industry that suffered the worst during the recession and is taking the longest to recover.

In terms of scale, the supply side of new housing has suffered more than any recovery in the economy recently, so it may be this which is the biggest factor for the country as a whole. However, in London there have been many reports that foreign money, especially from Arab states and China, is being invested into the London housing market and could be an external factor fuelling demand lead increases that we can’t control.

At some point limiting factors such as purchasers income and the size of deposits required will come into play with income multipliers and maximum LTVs only able to sustain a certain level of house prices before demand slows back down. This is where regulation of lending could dampen an over heating market putting in place restrictions on lending criteria.

One of the biggest and most immediate fears of property investors is the Bank of England increasing the Bank Base Rate to curb any house price inflation. This is now less likely as the BofE are no longer just targeting inflation levels, but also have the wider remit of encouraging the growth of GDP. Therefore it is less likely that they would consider harming the recovery by increasing interest rates, and more likely that they would look to use regulation of lending to control this specific inflationary pressure.

The Bank of England’s Financial Policy Committee will meet tomorrow, when it will reportedly discuss the issue of a housing bubble and what action it could take.

I certainly see no evidence that we need to panic yet, but it would be very interesting to get readers thoughts on this subject.Housing Bubble


Buying a BTL with a residential mortgage Latest Articles, The GOOD Landlords Campaign

I am 24 years old and have owned my own home for a little over a year now. This house is on a repayment mortgage.

I have the opportunity to purchase a second house from my father in law which already has a tenant in.

My plan was to borrow approx 30k on my current mortgage for ‘”home improvements” and then use this as the deposit on this second home.

After phoning many banks they want a 70% LTV. The house I wish to buy is approx 200k.

This therefore means I can’t get a buy to let mortgage

Am I breaking the law by trying to obtain an ordinary repayment mortgage and then letting this out to the existing tenant as I see this as my only option ?

My plan long term is to rent the house on a repayment mortgage and then the rent would cover my monthly cost. if it fell short I would simply top it up to cover my fees.

I would have the correct buy to let insurance policies but would the mortgage lender be able to find out I am renting the property out?

Any help would be greatly appreciated with someone who has been in this position and now overcome it!

Regards

Dan Buying a BTL with a residential mortgage


The practicalities of a deeds of trust and using a Ltd company in England Latest Articles, UK Property Forum for Buy to Let Landlords

I am a higher rate tax payer and I want to expand my property portfolio further. I want to shelter the rental income from my income tax bracket as I wish to re-invest the money into buying more property. I do not need to draw money from the business. The practicalities of a deeds of trust and using a Ltd company in England

I have read extensively and considering my long term goals, using a Ltd company seems to be the best fit. However, in the current climate, lenders seem to have very low LTV products e.g. deposits required equal 35-45%, which is counter productive to growing a portfolio.

I have read that you can buy the properties as personal BTL mortgages with deposits of 25% and then create a deed of trust to the Ltd Company and benefit from corporate rates on income. However, it’s very hard to be sure this is in reality a workable option as I have many questions where the answers are not very forthcoming.

If anybody actually has any real life experience with this approach, I would really appreciate your help on these questions below:

  • Do you have to tell the mortgage company you are going to put the property into deed of trust to a Ltd company when applying for the mortgage?
  • Do mortgage companies accept this method to managing your portfolio?
  • If you do the deed of trust at the same time as you purchase the property, does this avoid any CGT issues since there would be no gain from when you personally bought the property (no change in Market Value price)
  • Does the deposit you put into the property become a ‘directors loan’ too?
  • How easy is it to re-mortgage the property when you need to re-finance the property?
  • Is there anything specifically that needs to be included in the deed of trust to ensure the income is regarded as that of the business?

Any other comments?

I really would like the advice of somebody who has actually done it or is doing it now as I don’t think everybody really understands the value of a limited company to some investors, especially when they are exposed to super high tax rates above the 40% bracket.

Many thanks

Terry


Aldermore offer Buy to Let for customers with light adverse credit Buy to Let News, Latest Articles

Since the credit crunch it has been extremely difficult for anyone without a perfect credit history to obtain a Buy to Let mortgage. Mainstream lenders have not been interested in entertaining any mortgage arrears, CCJs or defaults until now.

Aldermore have changed their Buy to Let criteria  allowing a mortgage to be considered for customers who have had:

  • 1 or 2 missed mortgage payments over 12 months
  • CCJs and Defaults registered over 3 years ago
  • Missed unsecured credit payments such as credit cards, mobile phone, loans etc

In recent years most options open to Buy to Let customers with any adverse credit would have cost 8-10% and even up to 15% for more serious cases.

This is obviously a very clever attempt to capture market share in a niche area, but really does help a lot of investors who have had a blip and are still a good risk

The Aldermore Product range starts from:

  • 3.98% for a 2 year fixed fee 2.5% at max 75% LTV
  • up to 4.98% with £1,999 fees for their 80% LTV products.

Aldermore Criteria includes:

  • No minimum income for experienced Landlords or £25,000 min for First time Landlords
  • Min Value of a property £75,000
  • No DSS tenants
  • Max 5 properties with Aldermore

You can get a full quote on our Buy to Let mortgage sourcing Calculator if you wish (CLICK HERE)

Or if you need any help with a Buy to Let application

Email: info@property118.com

Tel: 01603 489118Aldermore


Buy to Let mortgage products and criteria – market update Buy to Let News, Latest Articles

After updating and writing the article on our Buy to Let mortgage sourcing system and calculator I thought I would give readers an update of what is still available and popular in the market.

You can find all these products on our system and get a quote (CLICK HERE), but many people ask me what has changed since they last took out a Buy to Let mortgage normally pre-credit crunch.

Loan to Value (LTV):

The industry standard maximum LTV is now 75% as opposed to 85% up to 2008.

You will find the cheapest rate products and and fees around the 60 – 65% LTV region with sub 3% short term rates or products with no arrangement fees and fees assisted such as Valuation and Legal cost.        Eg. 2.49% 2 year fixed with 2.5% fee

80% products will tend to have higher rates around the 5% point, with increased arrangement fees and stress testing to cover the perceived increase in risk compared to lower LTV products. A popular market provider of 80% LTV products is The Mortgage Works with rates starting from 4.14% 2 year fixed with a 2.5% arrangement fee to 5.29% with a £995 fee.

85% is still available with Kent Reliance but at a cost to rates fees and criteria – 4.99% 2 year fixed product fee 2.5% and reversion rate after initial term 6.58% SVR (ouch). Minimum property value £75,000 and £25,000 applicant earned income with proof.

Stress Testing:

How much you can borrow based on the rental income aka Stress Testing has actually changed very little over the years since 2008.  With reduced Loan to Values, lower property prices and increased rental income the amount you can borrow based on rent is not normally an issue unless the property is particularly poor yielding or the Loan to Value is high with a high stress testing.

The average stress testing figure is based around 5% notional rate and covering the interest by 125%. This in plain English equates to being able to borrow 192 times the monthly rental income. However at lower LTVs and interest rates this could be as much as 300 times or as little as 154 times for 80% products.

Criteria:

You can still borrow on Buy to Let mortgages for non standard properties such as HMO’s, new build flats, Multi-Unit, flats above none smelly or noisy commercial, however you have to be prepared depending on lender and the property for a lower LTV, higher interest rate and higher stress testing to cover the lenders perceived risk again.

Borrowing on Buy to Let mortgages in the name of a Limted company is still possible with Lenders such as Keystone, but it is preferred to be a Single purpose Vehicle rather than a Trading Ltd company and the options are vastly reduced. Therefore the tax advantages of purchasing using a Limited company can often be negated by difficulty and cost in finding finance.

Example Products:

Some other products not mentioned that I noted when updating the system as potentially stand out were:

3.99% 2 year Tracker Libor Tracker No Fee and Free Valuation 75% LTV

4.98% 5 year fixed £1,999 fee 80% LTV

3.49% Flexx variable mortgage for the term Fees £999 with no early repayment charge and free remortgage service and Valuation 65% LTV

4.74% Standard variable for the term No fees No early redemption penalty free valuation 65% LTV

2.99% 2 year fixed 2.5% fee 75% LTV

To Search for all the products on our own in house Buy to Let mortgage sourcing system and calculator please CLICK HERE

For any assistance you may need with a Buy to Let mortgage please email info@property118.com

Tel: 01603 489118Buy to Let Mortgage system

 


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

 

 


Light Refurb alternative – Bridge to Let Buy to Let News, Latest Articles

The Mortgage Works have withdrawn their popular and industry leading Light Refurb product, which allowed a property to be financed using a Buy to Let mortgage even though it required a small amount of work before it could be Let (usually a lender will insist on a full retention if the property is not in rentable condition). However as one door closes another opens and Precise Mortgages Bridge to Let product allows borrowers to switch their bridging loan into a Buy to Let product after four months.

There are no additional valuation or legal fees and customers are allowed to take a Buy to Let loan up to 75% of the property’s post works valuation.

To date Bridge to Let products have been useful but the monthly interest rate on the buy to let element has not been competitive and expensive when compared with normal Buy to Let rates.

Bridge to Let is available to:
• Property investors who are carrying out refurbishment works before letting a property.
• Property investors who want to refurbish a property and use the profits to re-invest in a new project.
• Bridge to let products are only available to Precise Mortgages Bridging customers.
• Not available to first time landlords.

The Bridge:
• Select any Precise Mortgages Bridge Product (there are no restrictions).
• Minimum Bridge Term is 4 months.

The Buy to Let:
• Free legals and valuation when exiting a Precise Bridge.
• Choose a Buy to Let product from the Bridge to Let range.
• Max LTV is 75%.
• Min term 5 years, max term 30 years.

If you require any assistance with this type of product or finance please complete the form below.

Contact Howard Reuben

Mortgages, Commercial and Bridging Finance, Life Insurance, Wills, Trusts and LPA's
  • Please enter a number from 0 to 999.
  • How can I help you?
Bridge to Let


Are freehold ground rents a good investment? Latest Articles, UK Property Forum for Buy to Let Landlords

I have just started investing in property.Are Freehold Ground Rent Investments a good investment?

Living overseas, I have been unable to get a U.K. mortgage so I have had to pay cash for my first property.

I have a good rental yield of 10.1%, but obviously no leverage for now. I am arranging more business commitments in U.K. to eventually remedy the mortgage problem.

My question is this: Continue reading Are freehold ground rents a good investment?


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