Buy To Let mortgages have become expensive as investors are asked to commit more funds and pay higher arrangement fees. This article explores how to make a viable investment work.
The end of Mortgage Express caused BTL shockwaves across the industry, a lender so valuable to the investor because of their flexibility and favourable criteria. Of course, on the other side of the coin, critics argue that it was down to their flexibility that got them and similar lenders into trouble as it is. Customers have been told that they have between February and June 2009 to remortgage, with Mortgage Express waiving any Early Repayment Charges that may be in place during this period. As generous as this sounds, there is little for these customers to cheer about.
With property prices deflated affecting loan to value ratios, btl mortgage customers also have the the added woe of extortionate arrangement fees. Even for those borrowing very small amounts to get the best rate, a £5,000 fee would not be uncommon. It should be an investors dream right now with property yields in some areas well over 7%, but some deals simply don't stack up when it comes to sorting out the financing.
How to make it work:
Some investors don't have a problem with arrangement fees being so high in this market because, if they pick up a bargain and can make the cashflow work, they think of the arrangement fees as part of the investment.
Example:
| RICS Value: | Rental income: | Secured Price: | Mortgage: | Deposit: | Arrangement fees: | Mortgage Payments: | Gross Profit (Month): |
| £125,000 | £600 | £110,000 | £77,000 | 33,000 | £2,695 | £224 | £376 |
In the example above, we can see when a property is secured below market value with a RICS valuation of £125k, the arrangement fees don't impact the investment. The total outlay would be £112,695 (secured price plus mortgage arrangement fees) on a property worth £125,000.
We have many links on our investor page to property investment provders who can secure property like this. If you register free with us then you will be able to access a number of Below Market Value property investment sources.
If you need advice on btl mortgages then please give one of our experienced mortgage advisers a call.
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