BTL Second Charge Mortgages / No Monthly Payments

BTL Second Charge Mortgages / No Monthly Payments

21:59 PM, 30th October 2013, About 11 years ago 145

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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


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Comments

Neil Patterson

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12:00 PM, 16th April 2014, About 11 years ago

Reply to the comment left by "Gillian Schifreen " at "16/04/2014 - 11:32":

Hi Gillian,

The systems surveyors use are all based around recent comparable sales and they have to fall within 5% of these.

If you have comparables the surveyor is not aware of you should use them.

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13:06 PM, 16th April 2014, About 11 years ago

Reply to the comment left by "Mark Alexander" at "16/04/2014 - 11:53":

Hi Mark, completed last month. However we intend to pay off the loan early and are aware of the minimum uplift so it wasn't a huge issue for us. Just thought I'd alert others.

I ended up re-mortgaging two properties and managing a new garage/flat build while being unable to walk and on mind boggling painkillers for 8 weeks because my op was brought forward. It wasn't ideal!

Alistair Cooper

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15:52 PM, 16th April 2014, About 11 years ago

I haven't known Howard for that long but he is progressing 2 CT cases for my mother at the moment, and his service has been top notch and professional throughout. He deserves a small medal for putting up with our procrastination so far, as we are perhaps getting over paranoid about getting the properties involved in to top notch condition before a valuer visits. I would of thought if anyone would fight your corner for you he/his firm would. The poor old broker often gets blamed for disappointing valuations but as Howard has already pointed out they have little involvement in that part of the application process and its always safer ground for a valuer to undervalue than over. In the current lending climate having the best broker is probably more important than ever!

Mark Alexander - Founder of Property118

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16:19 PM, 16th April 2014, About 11 years ago

Reply to the comment left by "Alistair Cooper" at "16/04/2014 - 15:52":

I totally agree Alistair.

I have referred 100's of landlords over to Howard's business (HD Consultants) and also to Adam Hosker's (Bespoke Finance). Both are NACFB members and whole of market brokers and are incredibly professional. They are two of the best out there, hence they are two of the six firms I regularly recommend. I have always had nothing but praise back from the people I have referred.
.

Neil Patterson

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16:23 PM, 16th April 2014, About 11 years ago

Reply to the comment left by "Alistair Cooper" at "16/04/2014 - 15:52":

Hi Alistair,

I am sure Howard will be very grateful for your feedback and he has always done a brilliant job for P118 readers 🙂

Just for clarity though it turned out that Howard was not involved in this case.

Howard Reuben Cert CII (MP) CeRER

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18:25 PM, 16th April 2014, About 11 years ago

Thank you Alistair (which reminds me ...we must speak soon!!) 🙂

Thanks also to Mark and Neil for your kind comments - now just looking forward to Gillian and Jeremy's clarifying comments too.

I totally agree with Mark's inference that the NACFB 'badge' is one to be promoted, and so to be sure of who is, and who is not an NACFB Member, simply put in a Broker's post code here > http://www.nacfb.org/find_a_broker.html

For confirmation that we (H D Consultants) are indeed Full Members of the NACFB, click here > http://www.nacfb.org/find_a_broker.html?searchPostcode=co3+3ax&searchAuto=1&action=search&x=11&y=12

Howard

William Wylie

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22:12 PM, 27th May 2014, About 11 years ago

Is this scheme available to landlords in Northern Ireland?

Adam Hosker

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11:09 AM, 28th May 2014, About 11 years ago

Reply to the comment left by "William Wylie" at "27/05/2014 - 22:12":

Unfortunately William the product is available to England & Wales only.

Perhaps NI in the future but not at present.

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11:24 AM, 28th May 2014, About 11 years ago

Yes, apologies Howard. I was dealing with several various mortgage products simultaneously and got confused. And yes I got a very good service from Stephen.

I however never blame the brokers but I do think the companies offering these products have 'arrangements' with valuers. I did question the valuation but was told I could take it or leave it. It suited me to go ahead at that point in time and intend pay the loan off prior to selling the property.

Nitzan

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18:16 PM, 30th June 2014, About 10 years ago

Hi Mark,

Is this still available? If so, could you please clarify the following:

The article says:
"...you borrow 20% of the value of your property the lender
will take 40% of any increase in value – on sale or refinance..."

When you say that the lender will take 40% of any increase in value, what does this mean?

If I bought a property for £100K 5 years ago and it's got a £60K mortgage on it. Today it's worth £120K and I'm asking for a 20% (=24K) loan on it.

How is the increase in value calculated?
Is it based on the valuation at the time of taking the loan (£120K)?

Then, when it comes time to sell/repay the loan and the property is worth £160K, will they take 40% of £40K increase in value? (=£16K)?

Thanks

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