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Landlords refinance low-yielding rental property to fund home renovations

Landlords refinance low-yielding rental property to fund home renovations

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.

  1. The property is ex-local authority

  2. The value of the property has outstripped the rental income resulting in a low yield 

  3. 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. 

Property Details

Here are the details of the deal:

Property value: £190,000

Loan amount: £142,500

LTV: 75%

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

NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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Mortgages for Business Ltd is authorised and regulated by the Finance Conduct Authority (No. 313537) to transact regulated mortgages. We are a credit broker, not a lender. We work with the whole of market in sourcing a lender for you; we may receive a commission from the lender, and this amount varies between lenders. The FCA does not regulate some investment mortgage contracts. Mortgages for Business Ltd is a founding member of the National Association of Commercial Finance Brokers, the body that promotes best practice within the commercial finance industry. Telephone calls may be monitored or recorded for training purposes.

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