Buy To Let Mortgage Prisoner: Our Work

We recently had the privilege of helping a client drop their monthly mortgage rate from £821.52 a month to £561.16 a month! Keep reading our case study to find out how.

What was the problem?

The client held a terraced property in their BTL portfolio in Clarendon Park, a vibrant and diverse suburb of Leicester. The property was let to professional tenants who had been living there for eight years without a rent increase, resulting in a rent far below market rate at only £650 per month. However, this had not been a problem as the monthly mortgage payment was £355.08.

Property Summary:

· 2 Bed terrace – Clarendon Park

· Value : £230,000 - £250,000

· Rent: £650pcm

· Existing Mortgage: £109,584

· Existing mortgage payment: £355.08

The issue arose when the current term came to an end, and the lender's standard variable rate increased to 9%, causing the monthly payment to rise to £821.52 per month, far above the current rental income.

Moreover, the client was a portfolio landlord with six properties, two which were empty, which meant the portfolio would not pass background checks. Furthermore, the existing property did not meet the lenders' interest coverage ratios with the low rent.

The client needed a mortgage of at least £109,584 and had a repayment of under the rental amount of £650pcm.

Our solution

To find a solution, we had to approach specialist lenders who could take a tailored approach to suit the client's circumstances. Most lenders we approached would not look past the low rent and the ICR shortfall.

However, we were able to speak to two specialist lenders who we had good relationships with, and who would look at the property on its own individual basis.

What was the outcome?

We were able to offer the client two solutions: a 2-year tracker and a 5-year fixed. The 2-year tracker was chosen to give flexibility in refinancing in the future when rates have settled, and the rent can be realigned to market levels. The chosen lender assessed the case on the market rent rather than the passing rent, and offered terms as follows:

Term: 2-year tracker

Initial rate: BBR + 1.99%

Initial monthly cost: £561.16

Lender Product fee: £2,204.30 (chosen to be added to loan)

Loan amount: £110,214.81

With this solution, the client was able to continue running the property covering its costs while giving themselves flexibility to release further funds in 24 months when either the market has settled, or the rent is higher to allow them to cover a larger loan. This solution also means that in 2 years’ time more favourable rates may be sourced when the empty properties are occupied to increase the choice of lenders and offerings.

What should you If your buy-to-let (BTL) mortgage is at the end of its term?

If your buy-to-let (BTL) mortgage is at the end of its term and you're struggling to meet lenders' stress tests, there are options available to you. Working with a specialist broker who has experience with BTL mortgages can help you navigate the market and find a tailored approach that suits your circumstances. With access to multiple lenders, a broker can find solutions that go beyond the rigidity of the market, helping you find a deal that meets your needs and improves your long-term profitability.

At Knights Row, we have helped many landlords secure a better deal, even in situations where the rental income no longer covers the interest on the variable rate. Don't despair – there are options available to you, and a specialist broker can help you find the best one for your situation.

So get in touch with Matt from Knights Row! Email matt@knightsrow.co.uk or call 0333 339 5905

Note: Case study is from 3rd March 2023.