Jump to content
elliotw88

Releasing capital for second investment

Recommended Posts

Hi,

I've just exchanged on my first BTL in Liverpool with completion due Q4 this year (thanks Hubbers for your advice so far!) and am thinking about considerations for when I want to expand my portfolio, potentially next year, particularly related to the BTL mortgage i get for the Liverpool property.

I will have a 60% LTV BTL interest only mortgage on the property. I have heard of refinancing and releasing equity to make the next purchase so if I was originally planning on getting a 5 yr fix for the security of it, I assume I'd be wise to get one with no/low early repayment charges if I knew I wanted to make another purchase before 5 years? Or better..just check if they offer further advances then I could keep my 5 yr fix and get a further advance for the deposit on the next property?

Any other thoughts/recommendations?

Thanks!

 

 

Share this post


Link to post
Share on other sites

Costs aside, I suspect it wil be a while before you will get enough house price growth to make it worth re-financing so why don't you get a 80% LTV and use the 20% saved for next property?

Share this post


Link to post
Share on other sites
51 minutes ago, haf1963 said:

Costs aside, I suspect it wil be a while before you will get enough house price growth to make it worth re-financing so why don't you get a 80% LTV and use the 20% saved for next property?

Hi,

I'm not 100% certain I want to get a second propety yet so not as keen to do this, but don't want to have limited myself e.g. high early repayment charges if I do so just looking for advice on what to consider.

Why would doing 80% LTV now be better than just getting a further advance down the line if I do want a second property? Better rates?

 

 

Share this post


Link to post
Share on other sites

The 80% is a better option if you were looking to build a portfolio in a shorter time frame but if its early days for you and a few years delay is not a problem then 60% is indeed a good option

Share this post


Link to post
Share on other sites

I think your decision will depend on a whole host of factors, many of which we will have no idea about: your tolerance to risk, your objectives, your plans etc etc.

One consideration (which you touch on) are the costs (of broker fees, product fees, ERC, valuation / legal fees etc).

Another consideration is obviously the rate. Ignoring everything other than the headline rate (which I know is wrong), using one of the online best buy tables, here are the best buys:

2yr 60%LTV 1.47%, 75% LTV 1.69%, 80% LTV 2.89%

5yr 60%LTV 2.01%, 75% LTV 2.34%, 80% LTV 3.49%

Stating the obvious, the rates are higher for both higher LTV and longer initial rate period, so, stating the obvious again, you are paying more for each of these.  Do you need or what these?

Note the jump between 75% and 80% LTV.  You are paying a lot more for the extra 5%.  Do you really need the extra 5%?

As noted above, there are a whole host of factors that are relevant to the decision which I have no idea about, but trying to put myself in your shoes, I might give serious consideration to the 2yr 60% LTV (the lowest rate) - it sounds like you dont want to do anything in the near term but possibly in the medium term - so i have guessed that 2yr might be broadly your timeline. I have also given up the 5yr security for a lower 2 yr rate, yes it is a lower rate, but more importantly it fits in with the timeline and I, in your position, would want to reassess the situation / restructure when i do my next investment.

p.s. if you do go for the lowest rate (2yr), make sure you put aside (in savings) the money you are not paying in interest (c.f. 5yr).  This will help to reduce the impact if Brexit makes the markets go pear shaped and you have to switch rates / fix in 2yrs.   

Share this post


Link to post
Share on other sites

 

On 5/15/2019 at 10:02 AM, farmer andrew said:

I think your decision will depend on a whole host of factors, many of which we will have no idea about: your tolerance to risk, your objectives, your plans etc etc.

One consideration (which you touch on) are the costs (of broker fees, product fees, ERC, valuation / legal fees etc).

Another consideration is obviously the rate. Ignoring everything other than the headline rate (which I know is wrong), using one of the online best buy tables, here are the best buys:

2yr 60%LTV 1.47%, 75% LTV 1.69%, 80% LTV 2.89%

5yr 60%LTV 2.01%, 75% LTV 2.34%, 80% LTV 3.49%

Stating the obvious, the rates are higher for both higher LTV and longer initial rate period, so, stating the obvious again, you are paying more for each of these.  Do you need or what these?

Note the jump between 75% and 80% LTV.  You are paying a lot more for the extra 5%.  Do you really need the extra 5%?

As noted above, there are a whole host of factors that are relevant to the decision which I have no idea about, but trying to put myself in your shoes, I might give serious consideration to the 2yr 60% LTV (the lowest rate) - it sounds like you dont want to do anything in the near term but possibly in the medium term - so i have guessed that 2yr might be broadly your timeline. I have also given up the 5yr security for a lower 2 yr rate, yes it is a lower rate, but more importantly it fits in with the timeline and I, in your position, would want to reassess the situation / restructure when i do my next investment.

p.s. if you do go for the lowest rate (2yr), make sure you put aside (in savings) the money you are not paying in interest (c.f. 5yr).  This will help to reduce the impact if Brexit makes the markets go pear shaped and you have to switch rates / fix in 2yrs.   

Thanks, lots of good food for thought! Interesting to see just how different the rates can be for a small % more..

Is there something I'm missing as to why a 5 yr fix at 60% (as that's all i need now) to have the extra security vs 2 yrs as I can't imagine rates being lower in 2 yrs, then get a further advance if i do decide to expand my portfolio wouldn't be a good or better option vs 2yr fix at 60% and remortgage if I need more funds?

Thanks

 

Share this post


Link to post
Share on other sites

If you go with a 5 year product, you're going to be locked into it for that time and if you want to do something, you're going to be faced with early redemption charges. You'll also be unpopular with the mortgage company which could impact on options going forwards.

Your broker will be able to tell you what the charges are but discuss your thoughts with them and they can advise if there's a suitable product with some flexibility. You could always look to the 75% option that allows overpayments, so you can pay it down towards 60% initially and then just pay the interest if you find something else you'd want to buy, meaning you'll still have a deposit.

Share this post


Link to post
Share on other sites
51 minutes ago, elliotw88 said:

Is there something I'm missing as to why a 5 yr fix at 60% (as that's all i need now) to have the extra security vs 2 yrs as I can't imagine rates being lower in 2 yrs, then get a further advance if i do decide to expand my portfolio wouldn't be a good or better option vs 2yr fix at 60% and remortgage if I need more funds?

No, I dont think you are missing anything. I dont disagree with your proposal.  I think it is just down to my preferences.

Opting for 2 yr was not driven by rate movement expectations, although i suppose it probably implies an underlying belief that the current low yield environment will persist for a number of years, but it wasn't a major driver. 

As mentioned above, it was mainly driven by timelines and the ability to reassess and restructure before making my next investment.  In 2 years time we should (!) have a much better idea of the impact of Brexit (and associated political change) on the property market and how far the "war on landlords" will go. Depending on the outcome I, in your shoes, might want to exit totally, or I might want to change my strategy e.g. from investment to development or some other thing etc etc.  Personal situations may have changed. Yes, if I did want to exit the property market or get rid of the mortgage, I could pay the ERC on a 5yr mortgage in 2yr, but i think it is just more cost effective to opt for the 2 yr (saving me ~£1k per £100k over the 2 years) and plan for a reassessment and restructure at that point.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...