Within the current climate, market turmoil and the realisation
that Northern Rock was not just a one off, buy-to-let
fun ding albeit still available is becoming increasingly
difficult to secure at competitive rates and to previous
criteria. While loan to values have come down, rental
cover has gone up. Taking a typical property value of
£200,000 and an existing mortgage of £170,000
(85%) with a rental income of £1,200 there are currently
5 products (3 of those being for existing borrowers only)
available at a fixed rate of 7.29% with rental cover of
100% leaving a rental surplus of £167. This scenario
no more than reflects the exceptional market conditions
we find ourselves in. There were no products available
at 80% as rental cover was not achieved, there were a
number of products available at 75%, the best being a
5.99% fixed to 31/01/2011 with a 2.5% arrangement fee.
Therefore to simply remortgage to a better rate our client
would have to find £20,000, carrying out as much
number crunching as possible figures just do not stack
up along with the fact that the majority of hard pressed
investors would be reluctant to subsidise another property
to the tune of £20,000 when this figure would arguably
support the best part of a deposit for a further property,
also bearing in mind the stamp duty holiday. Therefore
we now have to consider alternative methods of funding
our investment properties.
One product available to customers wishing to purchase
or remortgage a buy-to-let without relying on rental income
is a product with lending based solely on earned income.
There is no minimum income on first property application
and up to 3 properties can be mortgaged within the scheme.
However again the loan to value has recently been reduced
from 85% to 75% currently while the rate is a Bank of
England Base Rate +2.50% (currently 7.00%). While not
being available to first time buyers the loan size is
available up to £500,000. Maximum borrowing is calculated
using an affordability model and takes into consideration
the financial commitments and household expenditure of
the customer. Employed applicants will be expected to
have been employed for a minimum of 3 months in their
current job
and had 12 months continuous employment. Self-employed
applicants would normally be expected to have been self-employed
for a minimum of 12 months. Self certification declaration
is available but as always it is important that all Self
certification customers understand the consequences if
inaccurate information. Lenders do carry out random checking.
Commercial mortgage lending is also a consideration with
HMO's in mind, prior to the credit crunch there was lending
available for HMO's and especially large freehold properties
containing 4 or 5 self contained units and lending to
limited companies, however this lender withdrew products
as from the 30th September. Commercioal mortgage lending
on buy to let was available prior to the buy to let boom
and remains so. Commercial HMO lending is currently to
70% LTV, rates from 2% above base. Self-Cert is still
available on commercial lending up to and including 75%
ltv. For a further insight into commercial lending please
refer to our article from 15/06/2006 Commercial Loan -
Broker or bank
The current climate also has seen an increase in distressed
property sales available at auction and this is ideal
for short term bridging finance in order to secure the
property within the 28 day deadline should the property
require remedial works and/or mainstream funding remains
uncompetitive. Open and closed bridging finance is available
with first charge rates from 1.25%. 100% loan to value
is available as this can be secured on the total equity
pool. However as always with bridging finance a clearly
defined exit route is essential. Again for more detailed
information on bridging loans refer to Bridging loans
- The Essentials first published on the 21/05/2006. Bridging
loans is non status lending and all property types are
considered with typically a same day decision and 2 day
completion plans..
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