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New buy-to-let product opportune for landlords

From Property Talk Live on April 17, 2014

A new buy-to-let finance product is turning heads in the lettings market and opening the eyes of landlords to exciting new possibilities.

The product is claimed to be so innovative that the UK’s largest independently owned letting specialist, Leaders, believes it could be a significant game-changer for many landlords, enabling them to dramatically boost their rental yields and expand their portfolios.

Leaders’ Investor Network Manager, Phoebe Watson, said: “This is a unique and exciting product which enables landlords to borrow more without having to remortgage and without having to make any monthly payments during the term of the loan.

“It is an equity loan, so instead of paying interest and capital repayments, the lender takes a share in the capital appreciation of the property at the end of the loan period. If the property hasn’t increased in value at the end of the term or when it is sold, all that is owed is the amount originally borrowed. If the property goes up in value then the lender takes a share in the capital gains. ”

Leaders, in partnership with independent mortgage firm All Types of Mortgages (AToM), is making landlords aware of the product and helping them utilise it in the best way for their investment.   The Equity Loan was launched by Castle Trust in November 2013 and has captured the imagination of landlords. It enables them to use the equity in their existing property to raise money to buy more properties without affecting their cash flow. It may also be used to refurbish or make improvements to enhance the rental performance of their property or portfolio.

“With this Equity Loan you can borrow up to 20% of the property value-up to a maximum combined LTV of 85% with no monthly payments, no principal and no interest to pay,” says Phoebe.

“The loan is repaid on the sale of that property, voluntary redemption or maturity of the loan, whichever comes first.

“Instead of the lender receiving conventional interest they receive an agreed share of any increase in the property’s value during the term of the loan. This share is usually twice the LTV of the loan, so 10% LTV would mean 20% profit share; 15% LTV would mean 30% profit share, and 20% LTV would mean 40% profit share.

“This product is ideal for landlords wanting to increase their monthly income, by reducing their mortgage repayment each month and therefore maximising the yield. It is also a clever option for those looking to free up capital to expand their portfolio. The best way to do this is to invest in areas where the yield is excellent but the capital growth is not as good, therefore boosting the yield but handing over less of a profit share to the lender when the property is sold.”

The Equity Loan can be taken out over 1 to 10 years with no monthly repayments during the term. There is no debt service stress test and no minimum income requirement, although the self-employed and employed must be able to prove their income.

“A product like this, with its flexible terms, is extremely welcome in the buy-to-let lending market, which has seen little innovation in recent years,” said Phoebe.

“The lettings market is booming and this product will enable investors to capitalise on the many opportunities available. This is hugely exciting for landlords and we are pleased to be able to give impartial advice on whether this product will help enhance their investment, and if so, exactly how best to utilise it.”

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Source: Property Talk Live