Stress test at pay rate required on low yielding London rental flat to maximise borrowing

We were approached by a part-time landlord for help in raising finance to use as a deposit on his second buy to let property.

The client, also a Chartered architect was hoping to refinance his only rental property – a two-bed flat in North London, held in his personal name.

The client had been letting the property out to the same couple for numerous years and had never increased the rental payments, even as the value of the property increased. Because of this, the property was producing a low gross yield of 3.6% p.a.

To ensure we could secure the maximum amount the client was able to borrow we needed to find a lender with a generous RTI calculation for individual applicants. Recently, many lenders have increased their standard RTI calculation for individual borrowers, leaving only a handful which have not yet revised their policy.

Luckily for the client we have access to an intermediary only lender which is still offering an RTI calculation of 125% at a pay rate of 3.99%.

The following terms were offered:

Property value: £500,000

Loan amount: £360,000

LTV: 72%

Rate: 3.99% term tracker

Term: 20 years interest only

Lender arrangement fee: 2% (£7,200)

Mortgage payment: £1,217 pcm

Rental income: £1,500 pcm

Gross yield: 3.6% pa

RTI: 125% at 3.99%

Applicant: Individual

Consultant: Charlie London, 01732 471604

30th August 2016