Spotlight on two 80% Buy to Let products

Two similar products – look at the detail.

This is an example of the terms, criteria and costs I would consider for Landlords looking to borrow 80% Loan to Value and minimise the capital required to purchase a property, or maximise the amount of equity that can be released. Below are two very similarly priced products from different lenders and how they could be assessed.

5.79% fixed for 3 years until 31/05/2015 with The Mortgage Works

Arrangement fee 2.5% of the loan amount and can be added over and above the 80% LTV (load to value) required

Early repayment charge of 5% of the outstanding balance until 31/05/2015

Interest rate reverts to 4.99% variable after 31/05/2015

Ability to borrow up to 160.26 times the property’s monthly rental income as assessed by the lender’s valuation survey

Max loan amount £350,000 Min loan amount £25,001 Min property value £50,000

No minimum income criteria and employment status not required.

Must already own and let a Buy to Let property for the last 6 months

No HMOs

Cost over 3 years on a £160,000 interest only advance = £32,487

Cost over 5 years on a £160,000 interest only advance = £48,854

To see how this is calculated click here for previous article “How to choose a Buy to Let mortgage based purely on cost”

Comments: Ability to add arrangement fee to loan amount reduces capital required to purchase the property. This increases the loan amount on which interest is paid hence the higher additional interest cost of £694.80 for the £4000 arrangement fee over 3 years. Current lower reversion rate would reduce long term costs beyond the period of the fixed rate although this could change. No requirement for an applicant to have an income source is a unique selling point for this lender.

5.88% fixed for 3 years with Aldermore

Completion (arrangement) fee 2.5% of the loan amount and will be deducted from the advance

Early repayment charge of 5% year 1, 4% year 2 and 3% year 3

Interest rate reverts to 5.73% variable after 3 years

Ability to borrow up to 163.26 times the property’s monthly rental income as assessed by the lender’s valuation survey

Max Loan amount £400,000 Min loan amount £25,000 Min property value £75,000

No minimum income criteria but applicants must have a verifiable income source

Must already own and let a Buy to Let property

No HMOs, new build flats or ex Local Authority flats

Cost over 3 years on a £160,000 interest only advance = £32,224

Cost over 5 years on a £160,000 interest only advance = £50,560

Comments: The completion fee cannot be added to the loan amount and increases the capital required to purchase the property, but reduces the interest costs compared to adding to the loan by £705.60 over the 3 years. The higher current reversion rate increases long term costs beyond the fixed rate period. The stepped early repayment charge would reduce the cost of redeeming the loan if circumstances changed and forced a sale, or if you wished to remortgage to release equity.

You can see from the two examples above how important it is to take into account an individual Landlord’s personal and financial circumstances both now, across the period of the loan and beyond when comparing Buy to Let products.

Some of the things you need to ask yourself about the next 5 years are:

Am I intending to expand my portfolio and will I require equity for future purchases?

When am I hoping to retire and how will this affect my required return on my investments?

How would an increase in interest rates affect the serviceability of this loan and my wider portfolio?

Will my personal income change, do I have other investments maturing?

Which will be more important; income or capital growth?

What cash contingency will I need in the event of tenancy voids or unforeseen issues?

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