Non Standard Mortgages - Buy To Let
Capital Raising With Buy To Let Mortgages
Capital raising is a feature of many buy to let mortgages
that enables investor landlords to draw down funds from
the existing mortgage on a property, often to help finance
further property investment. In times of rapidly rising
prices, this can be an incredibly effective way to build
a property investment portfolio, made possible by the repayment
of debt and rising property prices.
Take the following example:
An investor buys a property for £130,000 with a mortgage
of £90,000. Some time later, the value of the property has
risen to £150,000, while the outstanding mortgage debt has
been reduced to £70,000. This means that the investor has
£80,000 worth of equity in the property.
The lender has set a maximum loan-to-value of 80%, which
equates to £120,000 on a property worth £150,000. This means
that there is still £50,000 worth of equity that the landlord
can free up and still be within the loan to value requirements
of the lender.
With the lender's permission, this could then be used
as a sizeable deposit on another new property, along with
a slush fund for refurbishment, marketing and maintenance
costs.
The money that is drawn down doesn't have to be used to
expand, as this is not the aim of every investor landlord.
It could be used for repairs to the property against which
the mortgage is secured, used to reduce the loan size on
another property with a less favourable mortgage rate or
some other purpose that falls within the definition of acceptable
use by the lender.
