It will come as no surprise, however, that some recent research showed that one of the biggest frustrations for buy-to-let clients currently centres around the rental-stress test calculations used by most, if not all, lenders.
For lower-yielding investment property, stress tests are a serious obstacle to maximising a landlord’s gearing. Help is at hand with the new Castle Trust equity loan products.
Castle Trust’s second-charge mortgage products have no monthly payments and for this reason no additional stress test is applied to the extra borrowing. This means that buy-to-let investors can gear up to 80% LTV or more, even on low yielding assets.
To illustrate this further, here is an example based upon an actual case, where the client raised capital to expand his portfolio.
Mr. Grant had a buy-to-let property which was worth £350k. His existing buy-to-let mortgage was £255,000 at 73% Loan To Value. He approached his mortgage adviser as he wanted to raise additional capital so that he could fund a deposit for a new buy-to-let investment.
His existing buy-to-let property was low yielding and it was proving difficult to remortgage due to the rental calculations being imposed.
His adviser recommended Castle Trust. Mr. Grant was attracted to the Buy To Let Equity Loan because of the no monthly payments feature. Because there was no additional stress test on the rental income (which was sufficient at 73% LTV but not above that) he was able to borrow £42,500, topping up to 85% LTV. Mr Grant plans to repay the Castle Trust loan by remortgaging the property as soon as rising rents can support the additional borrowing. After the first year Castle Trust’s product has no ERC.
This additional capital was used as a deposit for the purchase of a new buy to let investment.
Matthew Wyles is senior policy adviser to the Board at Castle Trust
For Castle Trust’s explanatory infographic on its Buy to Let Equity Loan, click HERE.