Buy to let capital release to fund deposits
I speak to Landlords daily and often hear impart this sentiment: “My current interest rate on my buy to let mortgage is great so I don’t want to change it. However the property has gone up in value and I want do a Buy to let capital release to fund my portfolio expansion”.
Why do I hear this so often? Well pre credit crunch the Trackers were normally benchmarked at a low level over Bank of England Base Rate (BBR). The last thing anyone anticipated was that the BBR would plunge from 5% to 0.25%. The Lenders won’t make the same mistake again, so Landlords are understandably don’t want to surrender this once in a lifetime opportunity, so cling on tightly onto their current mortgage deals.
That’s all great, but if you are a Landlord used to gearing up and releasing money from property to fund further investments, this reluctance stifles your plans. Well, that’s is if you limit your options to remortgaging. There is however another way – second mortgages.
What’s a second mortgage? Well like your current mortgage it is loan secured against the property. Importantly it does not disturb the current deal but the current lender needs to grant their consent to the transaction – and most will; although from my experience Mortgage Express can be a hard nut to crack in this regard.
How do second mortgages work?
Existing buy to let mortgage with BM Solutions (formerly known as Birmingham Midshires) £250,000. It is on a lifetime tracker at BBR+1%. The mortgage has 20 years to run.
The property has been renovated and extended, and is now worth £575,000.
You need to release £125,000 to start two further buy to let projects.
If you were to remortgage for £375,000; the BBR+1% would be lost. Instead if you take out a second mortgage for £125,000 you can keep the BM Solutions deal. A win-win.
Niche Advice offers appropriate advice on second mortgages. To find out how they could help you raise money without losing your current mortgage please contact us online or by calling T: 020 7993 2044.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.