We were approached by a married couple - both longstanding clients of MFB, who were looking to refinance one of their rental properties to raise capital for home improvements.
In total the couple were looking to raise just over £30k.
The property the couple were looking to raise finance against is a 1960’s three-bed semi-detached house in Sheffield. The couple had originally purchased the property in 2010 and had split it into two semi-detached houses (only one of the properties was being refinanced).
There were three main challenges with sourcing finance for this case, which meant we would need to approach a specialist lender.
- The property is ex-local authority
- The value of the property has outstripped the rental income resulting in a low yield
- The couple own the adjoining property
Lenders are always cautious when clients own adjoining properties, as there is a risk that the clients may make alterations or remove the boundaries between them. This can then cause complications if the property later needs to be repossessed.
The value of the property had increased considerably since purchase, but this had not been matched by an increase in the rent, leading to a low annual yield. Given the current rental income, we needed to use a lender that offers a generous rent to income calculation, allowing us to maximise the loan amount.
We approached a specialist buy to let lender that uses split stress tests, which allowed the clients to achieve a generous RTI due to their status as basic rate tax payers.
After reviewing the case, the lender offered a competitive five year fixed rate with a free valuation and no arrangement or legal fees.
Here are the details of the deal:
Property value: £190,000
Loan amount: £142,500
Rate: 3.99% 5 year fixed
Term: 25 years interest only
Borrower: Joint personal applicants
RTI calculation: 125% @ 4% (clients proved that they are lower rate tax payers)
Mortgage payment: £473 pcm
Rental income: £600 pcm
Gross yield: 3.8% pa
Consultant: Gavin Elley, 01625 416396
30th May 2017