BTL mortgages - current thoughts

[caiss4]

Looking to buy a couple of BTL's at around the £130k mark each with 50% interest only mortgages. The deals I'm being offered at the moment are 5 year fixed at 3.64% (fees total £330 with £300 cashback) or 2 year tracker at 2.35% with £199 fees. The latter sounds quite attractive after the latest BoE comments but I realise that re-mortgaging in 2 years might negate the benefits particularly

As it happens I'm looking to maintain the BTL's for at least 5 years and yield will be about 5% gross. What would you choose?

[Claudia Skies]

Do you live in a nice big house? If not, you could buy one to live in. That's a punt on the housing market, has very low running cost increase and any gains you make are tax free. Cushty!

[Claudia Skies]

5% gross isn't a big return. Lot's of costs to pay out of that - and then there's the risk. And the hassle.

[Sarnie]

caiss4 said:

Looking to buy a couple of BTL's at around the £130k mark each with 50% interest only mortgages. The deals I'm being offered at the moment are 5 year fixed at 3.64% (fees total £330 with £300 cashback) or 2 year tracker at 2.35% with £199 fees. The latter sounds quite attractive after the latest BoE comments but I realise that re-mortgaging in 2 years might negate the benefits particularly

As it happens I'm looking to maintain the BTL's for at least 5 years and yield will be about 5% gross. What would you choose?

You do know that the 2.35% rate isn't a Tracker rate but is actually a Discounted rate? Meaning that it's a rate that is tied to the lenders SVR, not the base rate, so the movement in rate is at the discretion of the lender not what the base rate is doing.

The base rate could go up 0.25%, the lender could put their SVR up 0.5% if they chose to.......

[gibbon]

Whats the best fixed deals for 2y on btl with 50% deposit at the moment including fees?

[no effort]

Thats a lot of equity to put in btl's. Why 2 and not 3 or 4?
I take it you've done your sums though.

[lewisf182]

That gross % is a bit of a crap return tbh. My flat in sheffield cost me £85k, rents for £620 a month and the mortgage is £220 interest only. And it's in an up and coming area right next to the city centre. That's a massively better return than the one you speak of, so may be worth looking elsewhere not necessarily where you live if that is the case?
With those rates at 50% maybe it would be better to drop to 30% and buy 1 or 2 more?

[no effort]

lewisf182 said:

That gross % is a bit of a crap return tbh. My flat in sheffield cost me £85k, rents for £620 a month and the mortgage is £220 interest only. And it's in an up and coming area right next to the city centre. That's a massively better return than the one you speak of, so may be worth looking elsewhere not necessarily where you live if that is the case?
With those rates at 50% maybe it would be better to drop to 30% and buy 1 or 2 more?

Do you have a service charge or does that get passed on to the tenant?

[caiss4]

Sarnie said:

You do know that the 2.35% rate isn't a Tracker rate but is actually a Discounted rate? Meaning that it's a rate that is tied to the lenders SVR, not the base rate, so the movement in rate is at the discretion of the lender not what the base rate is doing.

The base rate could go up 0.25%, the lender could put their SVR up 0.5% if they chose to.......

Thanks for pointing that out I will have to check with the broker but it has been pitched as a tracker rather than a discounted rate.

ETA: you're right - this is a disounted rate - b****y brokers

Edited by caiss4 on Thursday 19th February 13:08

[caiss4]

no effort said:

Thats a lot of equity to put in btl's. Why 2 and not 3 or 4?
I take it you've done your sums though.

It may become more and I may end up increasing the LTV but this was based on what is immediately available.

[caiss4]

no effort said:

lewisf182 said:

That gross % is a bit of a crap return tbh. My flat in sheffield cost me £85k, rents for £620 a month and the mortgage is £220 interest only. And it's in an up and coming area right next to the city centre. That's a massively better return than the one you speak of, so may be worth looking elsewhere not necessarily where you live if that is the case?
With those rates at 50% maybe it would be better to drop to 30% and buy 1 or 2 more?

Do you have a service charge or does that get passed on to the tenant?

The places I'm looking at do have a service charge which doesn't get passed on to the tenant so is having an impact on yield.

[Sarnie]

caiss4 said:

Thanks for pointing that out I will have to check with the broker but it has been pitched as a tracker rather than a discounted rate.

ETA: you're right - this is a disounted rate - b****y brokers

Edited by caiss4 on Thursday 19th February 13:08

Some Brokers are better than others

Good luck!

[caiss4]

Sarnie said:

Some Brokers are better than others

Good luck!

That's for sure! Now this may be a naive question but I've found that brokers tied to agents consistently quote £1k - £2k 'arrangement' fees but my currently preferred broker (even though he was economic with the truth about the tracker!) is quoting £300 max even though the interest rates are similar. So how does that work then? Is my broker getting a commission from the mortgage provider?

[Sarnie]

caiss4 said:

That's for sure! Now this may be a naive question but I've found that brokers tied to agents consistently quote £1k - £2k 'arrangement' fees but my currently preferred broker (even though he was economic with the truth about the tracker!) is quoting £300 max even though the interest rates are similar. So how does that work then? Is my broker getting a commission from the mortgage provider?

The arrangement fees are payable to the lender, not the Broker.

The rates offered by the Estate Agent will be lower than the rates the Broker has offered you but carry higher fees.

The rates offered by the broker look to be based on the best rate, of the rates with lowest fees.

The Estate Agency brokers are being lazy and hoping to blind you with the dazzling low rate, and then just mumble though the large fees and not mention that the heavy fees are probably negating the lower rate.

There's a reason why they are tied to Estate Agents

[lewisf182]

caiss4 said:

The places I'm looking at do have a service charge which doesn't get passed on to the tenant so is having an impact on yield.

I have service charges to pay too. Think they are around £1k per annum.

So interest @ 2640 PA, service charge £1k PA, Rent @ £7500 PA still returns a good yield. Especially if basing on what I actually put down as a deposit, the % return is huge. Let alone that it's now worth just over £100k and I bought in August 2013. Even at £100k they still make a lot of sense as BTL's though.

[caiss4]

Sarnie said:

caiss4 said:

That's for sure! Now this may be a naive question but I've found that brokers tied to agents consistently quote £1k - £2k 'arrangement' fees but my currently preferred broker (even though he was economic with the truth about the tracker!) is quoting £300 max even though the interest rates are similar. So how does that work then? Is my broker getting a commission from the mortgage provider?

The arrangement fees are payable to the lender, not the Broker.

The rates offered by the Estate Agent will be lower than the rates the Broker has offered you but carry higher fees.

The rates offered by the broker look to be based on the best rate, of the rates with lowest fees.

The Estate Agency brokers are being lazy and hoping to blind you with the dazzling low rate, and then just mumble though the large fees and not mention that the heavy fees are probably negating the lower rate.

There's a reason why they are tied to Estate Agents

Thanks for the explanation - I did say it was a naive question! Well as an update my offer for property one was accepted today and I'll probably be going for 3 BTL's with 40% equity in each.