Second charge mortgage to raise finance for further property investment

The clients are a married couple with a portfolio of more than 10 properties. The husband devotes his time to managing the properties and the wife runs her own separate, successful business.

They approached us looking to raise finance against one of their current buy to let properties to provide a deposit for a new buy to let investment. The property they were looking to raise finance against was a mid-terraced, 3-bed Victorian house in Manchester. They were keen to raise the funds without being limited by the current rental income, which would not allow for further borrowing.

We suggested that the clients consider taking out a buy to let equity loan. This is a type of second charge mortgage which has no monthly repayments. Instead, the loan amount is repaid along with 40% share of any increase in the property value during the life of the loan (subject to a minimum repayment of 2% per annum simple interest). This suited the clients as it did not affect their cash flow would potentially allow them to borrow up to 20% of the property’s value, up to a combined loan to value with the first mortgage of 85%. We negotiated the following deal:

Property value: £180,000

Rental income pcm: £610

1st mortgage LTV: 62% (outstanding loan amount £113,000)

Equity loan amount: £36,000

Equity loan LTV: 20%

Combined LTV: 83%

Equity loan monthly payments: Nil pcm - 40% of any increase in the value of the property during the life of the loan

Term: 10 years to mirror existing mortgage

Arrangement fee: 2% (£720)

Completion date: January 2015

Consultant