Remortgage strategy

S

sultanoflondon

New Member
Hi all,

I was wondering whether this strategy is a good idea to grow a property portfolio or in reality it won't work so well. Please do shed some light on this.

You buy a property for £400k using an interest only BTL two year fixed rate mortgage, with 60% LTV & 40% deposit (deposit is £160k and loan of £240k). This allows you to obtain a low rate on the mortgage, due to the relatively low LTV. Two years later, the property is valued at £440k. You remortgage with another interest only BTL two year fixed rate mortgage, with 60% LTV & 40% deposit (deposit is £176k and loan of £264k). Due to the price rise, you have to now pay £16k into the deposit and the bank releases £24k to you to make up the 60% loan. This means your net bank balance increase is £8k.

With this £8k, you can renovate the property, boost your savings from the rent earned towards another property, or whatever you wish.

I understand one major assumption in this strategy: that property prices are continually rising. Are there any other flaws with this strategy?

Thank you!
 
L

Longterminvestor

Administrator
You are not really giving yourself much financial headroom there in the event that property prices dont move and/or mortgage rates rise?
 
C

Conrad Paton

Member
The posters strategy is correct.

However market rent must be taken into account as this is a BTL investment property.

If the rental 'yield' can accommodate an increase in capital borrowing, subject to valuer's or surveyor's comments the strategy is sound.

Other lending criteria may apply. Check with a fully independent BTL broker.

Hope this clarifies things a bit

Conrad Paton
 
P

PostBrexitInvestor

Member
Do all mortgage providers allow you to take the full rental income into account?
 
C

Conrad Paton

Member
Hi Post

If you wish to take out a conventional BTL mortgage, either as an individual or through a SPV limited company, the lenders will ascertain the market rent through a survey or valuation inspection.

Full rental income? Do you mean Gross? Pre tax? ....yes is the answer. The price on the AST for example.

But it is their calculations ...not yours. Even if you have an AST already in place, (like a Remo for instance) the figures and financial viability of that AST will be checked by the lender via their surveyor.

Hope this helps

Conrad
 
F

FWL

Member
Let us say for example you had rental income of £12k a year, would they take all of that into consideration when checking mortgage affordability? I was led to believe they dont take the full rental income into account.
 
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