Tag Archives: second charge

Castle Trust Equity Loan Finance Buy to Let News, Landlord News, Latest Articles, Mortgage News, Property Investment Strategies, Property News

Castle Trust Equity Loan Finance has the potential to be the biggest game changer in the UK mortgage market since Buy to Let came about in 1996.

Not only does the Castle Trust equity loan finance product allow you to borrow more without having to refinance, there are also no monthly payments, EVER!

Instead of paying interest and capital repayments as you would on a normal mortgage or second mortgage, Castle Trust take a share in the capital appreciation of your property when it is sold. If your property doesn’t go up in value by the time you sell it then all you owe Castle Trust is what you borrowed, they make no return. If your property does go up in value when you sell it then Castle Trust take a share in the profits. Castle Trust

As you might imagine, the Castle Trust Equity Loan Finance offer has captured the imagination and creativity of landlords because this mortgage product can enable them to raise money to buy more properties without affecting their cashflow. The art of borrowing is to make your borrowed money work harder than it costs – this mortgage product certainly has potential for landlords to use it that way.

Industry reaction to the Castle trust products

I have already spoken to a few buy to let mortgage lenders about the Castle Trust offer and feelings are mixed. Some don’t like it because they feel it could affect their risk profiles, however, so far these lenders haven’t been able to give me a logical reason as to why they feel this way. On the other hand we have lenders which are considering designing new BTL products at 65% LTV with a view to dovetailing them into the Castle Trust product. They are considering this on the basis of there risk being lower than normal at 65% LTV and overall serviceability of debt also being better due to there being  no monthly interest payable on the top-up 20% of a loan provided by Castle Trust which takes overall gearing up to 85%.

Castle Trust have certainly got people talking and thinking!

Landlords are acting on this too – who knows how long it will be available for? I first wrote about the Castle Trust deal for landlords and our hand picked panel of advisers just a couple of weeks ago. Since then we’ve have an incredible response and referrals to our recommended advisers have already been converted at an incredible 90% plus conversion rate into decisions in principle from Castle Trust. Yes, they are a slick operation to deal with too, it’s possible to get a Decision in Principle within 24 hours of contacting one or our recommended broker panel members.

We have quite a debate going on amongst landlords and professional advisers about the pro’s and cons of the Castle Trust equity loan finance products elsewhere on this website. Therefore, I will not be adding a comments section to this particular post. However, do pop over to the thriving discussion over on this thread and  read what your peers have to say about the product. Feel free to ask questions yourself too 🙂


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, UK Property Forum for Buy to Let Landlords

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.


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, UK Property Forum for Buy to Let Landlords

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

  • Price: £ 200.00
    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

  • Price: £ 200.00
    Fees are non-refundable


Development finance using Equity instead of Liquid Cash Commercial Finance, Latest Articles

I have an example of how the commercial market is changing. Some lenders are now taking a risked based view of using second charges over equity as security for development finance rather than only relying on pure cash being put up as collateral by investors.

Example of a recently completed case, as follows:

A builder/developer was looking to buy a property to renovate for a long term investment and once complete take out a Buy to Let mortgage based on its new and improved value (and if possible have additional funds returned too).

He was very limited in the cash deposit he had, as all his money is tied up in other properties which he lets out, however he had a good level of equity in his main residence, which has a value of £600,000 and an outstanding mortgage with the Halifax for £300,000

He found a property which needed heavy renovation including a full new and extended kitchen, and also a new bathroom. The purchase price was £150,000 in its current state and the cost of renovation was £40,000 (as he would be able to do it himself). Therefore, the total borrowing required was £190,000

He ideally wanted to borrow 100% of the purchase price and 100% of the renovation costs using both properties as security, including using the equity in his home as additional security.

Once renovated he required a quick solution in changing the bridging loan into a Buy to Let mortgage

He was able to borrow 75% of the new purchase – which gave him £112.5k on a bridging rate of 1.15% for 3 months. A very keen rate for refurbishment deals.

The short fall of £37.5k towards the purchase and the £40k needed for the renovation works was raised by adding in the additional security via a 2nd charge on the client’s main residence by the same Bridging company.

He was offered a 2nd charge bridge on his residential property up to 70% LTV (although he did not require as much as that) including his existing main residence mortgage at a cost of 1.4% per month. This meant he could raise up to up to a max £120k from this property, more than enough to raise the required 100% of the purchase together with 100% of the renovation costs.

The valuer was booked to attend the property within 72 hours. In the meantime the shopping list of requirements was quickly collated and submitted.

Working closely with a solicitor that understood the speed required for a bridging loan, the deal was completed within a few weeks enabling him to ‘do up’ his new property, increasing the value to £300k.

3 months later he was then able to change the bridging loan product to the lenders the same lenders Buy to Let product at 4.10%, releasing 75% of its new improved (and surveyor agreed) value. This released £225,000 back to the client, enough to clear the bridging loans and put some money back into his cash flow.

Summary of Deal:

  • Liquid Cash available £0
  • Purchase Price £150,000
  • Costs £40,000
  • Gross Development Value £300,000
  • First Charge Bridge £112,000 at 75% LTV
  • Second Charge Bridge on Main residence £77,500 at 70% LTV
  • BTL on completion of works £225,000
  • Liquid cash released £35,500

The set up costs not including interest were:

  • 1st Charge on property of £150k = valuation £330
  • 2nd Charge on residential property of £600k = valuation £540
  • Legal fees = £780
  • Total = £1,650

Buy to Let 3 months later:

  • Property now worth £300k = valuation £360
  • Legal fees = £540
  • Total = £900

Could this be of interest to you?

If so, check our my member profile, linked from my author profile at the top of this article.liquid cash


Development Finance – Where do you start? Commercial Finance, Latest Articles

Borrowers are still being frustrated by the banks’ continued reluctance to lend on development finance projects, but reality is that if you know who to ask they are actually eager to lend on profitable projects to experienced developers.

It is navigating a way around the maze of lenders, different products and finding the finance that enables your project to be finished that can seem impossible. Many new lenders have entered the market since the Credit Crunch which has increased competition and resulted in various pricing structures.

I get to chat with many readers about their development projects, but the simple fact is that unless you do it day in day out, which I don’t, it is impossible to know which lenders have funds to lend, and on what type of projects and industry sectors they want to lend on.

I know the basics to ask, such as purchase price, planning permission, development cost, Gross development value, working capital, previous experience etc. This then gives a picture of whether a project is likely to be considered as viable for development finance, but is only really the first step on the ladder.

This is where my Colleague Cliff from Brooklands Commercial Finance comes in as he can navigate this maze of knowing which banks are lending. Cliff has established strong links with many lenders based on the quality of our introductions over many years and understands how to present robust propositions to lenders, each of whom have a specific target audience. This is the key to putting you, in front of the lender who is most likely to offer a finance package to support your project.

Cliff can help with:

  • Residential and commercial property development – rates from 4% over base
  • Structured loans from £75,000 to £25,000,000
  • Development projects throughout England, Scotland and Wales
  • Individuals, companies, partnerships
  • Terms from 1 month to 3 years
  • No exit fees
  • Flexible underwriting and the best deals
  • Unusual proposals
  • 90% property development loans available
  • Mezzanine finance and second charges
  • Joint venture funding
  • Guaranteed exit strategies
  • Residential, mixed use, leisure, health, offices, industrial, etc.
  • Conversions*

*There has been a relaxation in planning regulations in respect of office conversion to residential accommodation.

Brooklands Commercial Finance are Whole of Market Independent Commercial Brokers and if you would like to chat with Cliff please Click Here

or email info@property118.com

or call us on 01603 489118Development FinanceDevelopment Finance


Mezzanine Finance for Developers Commercial Finance, Latest Articles

(By Malcolm Jones of Brooklands Commercial Finance)

Despite the Banks recent profit announcements, Developers are still being frustrated by their continued reluctance to lend. When Banks are prepared to lend on development projects the percentage of costs or of the Gross Development Value (GDV) is often so low that it is not workable.

Many borrowers are now turning to Commercial Finance Brokers such as ourselves to assist with raising the total finance required.

Most property development loans can be broken down into Senior Debt loans and Mezzanine Loans. The Senior Debt element is the amount lent by the bank or finance company and this is often limited to 60% of the costs. Mezzanine finance is a second charge loan that sits on top of the senior loan and hence the name “Mezzanine”.

Mezzanine Finance

Due to the dramatic drop in bank lending to the property sector in recent years, many successful and profitable residential developments have made use of Mezzanine finance. With the Senior debt lender funding 60% of the costs the Mezzanine lender will often lend 30% of the costs, leaving a requirement of only 10% from the developer.

The finance can cover the costs of the land purchase, site and infrastructure costs, build costs and professional fees.

By using Mezzanine finance the developer is able to reduce his equity contribution, spread his risk and considerably enhance the percentage return on his own invested funds. Although Mezzanine finance is more expensive than Senior debt, there are many financial advantages.

For example:

Mr A goes for low gearing Mr B goes for high gearing
Mr A invests £200,000 in building 1 house Mr B invests £200,000 in building 6 houses
The GDV is £600,000 The GDV is £3,600,000
Finance at 50% £200,000 Finance at 90% £1,800,000
Finance cost £50,000   Finance cost at £450,000
Net Profit £150,000 Net Profit £550,000
Gross Profit 33% Gross profit 33%
Return on developers money 75% Return on developers money 275%

Because of the increased risk to the mezzanine company, they look for experience developers, good projects and a reasonable profit level.

If you require any assistance with Development finance please Click Here

Mezzanine Finance


Second charge BuytoLet loans via Shawbrook Buy to Let News, Commercial Finance, Landlord News, Latest Articles, Property News

shawbrookI received an email today from Shawbrook outlining their Secured BuytoLet Loans which on first glance I nearly ignored as I normally do for other second charge lenders.

On second thought though it struck me that I get a lot of questions from readers who would like to raise equity, but either do not want to remortgage as they are locked into extremely attractive tracker rates from the pre-credit crunch days, or their existing lender no longer offers further advances.

Therefore despite the high interest rate at 9.95%, which I would normally tell people to avoid, it could be possible that by not moving the whole mortgage a small amount extra on a higher rate might actually be more cost effective.

Shawbrook while only dealing direct with brokers are becoming a popular lender of choice for more difficult BuytoLet and commercial deals.

I asked Howard Reuben of HDconsultants if a lender like Mortgage Express, who are desperate to find any excuse to enforce redemption of a  BuytoLet mortgage, if it was possible they would then see the borrower as in default of their terms and conditions. The response upon investigation was not clear cut:

“We have not heard of any such foreclosures on the basis that a 2nd charge was implemented, but could not state categorically that a lender would not consider this action in the future though as it is assumed that it all depends on the lenders attitude towards their borrowers at that time. However the product, which has actually been available for quite a while now, is a successful product. Borrowers should of course be advised of all potential pros and cons – which is down to the Adviser.”

Shawbrook BuytoLet Secured Loan cost and criteria:

  • Interest Rate 9.95%
  • Lender fee £1,250
  • Maximum LTV 65% including existing mortgage
  • Maximum number of properties in a borrowers portfolio of 3
  • Early repayment charges 3% first 5 years and 1% thereafter
  • Stress tested so rent has to cover 110% of existing mortgage and new loan
  • Min Loan size £5,000 Max Loan size £75,000
  • For residential investment properties only – no DSS or HMOs
  • Max age 80 years old
  • Max term 25 years

To summarise the costs are high, the criteria strict, the LTV low and certainly should only be considered in the right circumstances. Although as you can tell I am certainly not going to sell anyone on the idea I thought it was interesting to discuss this type of product considering my first reaction was just to delete it out of my inbox.

Please let me know what you think if you have an opinion by leaving a comment below.

To search for a Buy to Let mortgage and Calculate how much you can borrow please Click Here

If you would like any advice from our recommended mortgage broker please do not hesitate to contact me on 01603 489118 or info@property118.com

 


Missed Second Charge. How to get it removed? Landlord News, Latest Articles, Property News, UK Property Forum for Buy to Let Landlords

Missed Second Charge. How to get it removedWe purchased a property in March 2008 from a rather devious lady who didn’t let on about an impending second charge.

The conveyancing completed and about a year later when we had to evict her for non-payment. WE had purchased the property and rented it back to her. Continue reading Missed Second Charge. How to get it removed?


Property Forum and News website where UK landlords and letting agents share best practice