As a fan of innovation in the buy to let mortgage market, I am pleased to announce that Mortgages for Business is involved in piloting a new 85% buy to let purchase product. Here’s how it works and how you can get access to it.
The product is a combination of a standard buy to let mortgage up to 70% LTV and an equity loan up to 20% LTV - with the combination to be no higher than 85% in total. For example, you can have a buy to let mortgage of 70% and a 15% equity loan or say a 65% mortgage and a 20% equity loan.
The product is available to landlords with five or more properties - a refreshing change to the frustrating limits imposed by the vanilla lenders.
How it works
Designed for professional landlords looking to minimise deposits and at the same time maximise cash flow.
With only a 15% deposit required, the buy to let lender will provide a 70% mortgage on a repayment or interest only basis for a maximum term of 10 years. Once the main mortgage has been agreed, the equity lender will provide the remaining 15% of the purchase price. There are no monthly payments payable on the 15% equity loan; instead 30% of the capital appreciation (i.e. double the equity loan) is repaid to the equity lender at the end of the term or when the property is sold, whichever is the earlier.
In the above scenario the landlord borrows 85% of the purchase price but only pays interest on 70% leading to a much improved cash-flow. Furthermore, with the rent to interest cover calculated only on the main mortgage, this product allows you to sensibly borrow more on lower yielding properties - ideal for those high value/low yielding prime London properties.
The pricing on the main buy to let mortgage is extremely competitive with a two year fixed rate at 3.99%, 1.5% arrangement fee, a free valuation and an initial application fee of just £150 (an MFB admin fee of £100 and standard broker fee is also payable).
Not only will you have the cash flow benefit of not paying monthly interest on the equity loan, but we believe that this combined product is likely to work out cheaper over the life of the loan than any 85% mortgage that is currently available. Clearly this is dependent on the level of capital appreciation achieved on the mortgaged property – but only if appreciation is greater than 7% p.a. is the cost of the equity participation likely to increase the total cost above that of a conventional 85% mortgage.
This new product is great news for landlords looking to expand their portfolios in a buoyant market. If you require further details or wish to discuss your next purchase then call us on 0845 345 6788.