A self-employed IT consultant who also owns four rental properties in Essex contacted us for help in expanding his property portfolio. He was looking to purchase a three-bed semi-detached house via IT business at 80% loan to value.
Unfortunately for the client, the projected rental income did not meet the affordability stress test of the majority of buy to let lenders.
To achieve the desired 80% loan to value, the client needed a rent to interest (RTI) calculation of 125% at 4.55% which is no longer easy to secure.
Increasingly, lenders have been upping their RTIs following proposals issued by the Prudential Regulation Authority to assume a minimum borrower interest rate of 5.5%.
Fortunately for our client, there are still a few lenders which still have the lower stress test in place (but probably not for long), so we approached one of them and the client was offered finance on the following terms:
Property value: £450,000
Loan amount: £360,000
LTV: 80% LTV
Rate: 3.93% 5 year fixed
Term: 25 years interest only
Borrower: Trading Limited Company
Lender arrangement fee: 1.5% (£5,400)
Mortgage payment: £1,196 pcm
Rental income: £1,750 pcm
Gross yield: 4.7% pa
Consultant: Nick Helm, 01732 471608