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Dear Delia

Intermediary Response

Mark Leaper, managing director, Vesta Packaging

Mr Jones has a healthy amount of equity in his property portfolio – some £270,000 – so funding a deposit should be no problem, even with the CCJs. A decision for him is whether to obtain a so-called let-to-buy mortgage on his home (whereby he remortgages his existing home to buy-to-let and buys a home for his new residence) or stays where he is and remortgages his home to fund a buy-to-let deposit. The deciding factor is whether he would like to move and whether his home would be good rental property (close to a railway station, amenities, and so on). If the answer is yes on both counts he should opt for let-to-buy as it brings significant cost advantages.

He would be foolish to sell one of his buy-to-let properties to free-up a deposit for two new investments. This is because he would be liable to Capital Gains Tax levied at 40% of the net proceeds of the sale. (However, if he has lived in the buy-to-let property himself for at least six months he might escape this tax.) Mr Jones will need a self-certification remortgage given his self-employed status and, despite the recent exit from the self-cert market of a number of lenders, there are still a wide variety to choose from. Among those on offer are products from Mortgages PLC, Platform, SPML, Preferred, First National, Infinity, Future and The Chelsea.

His total of £2,000 of CCJs should not present a problem with many of these lenders and because he has been discharged as a bankrupt for more than 12 months his previous insolvency will not be a stumbling block.

He should be able to get a keen rate given the competition and can expect something of the order of LIBOR plus 3% if he opts for a tracker.

His low level of savings indicates that he does not have a lot of room for manoeuvre if there are more interest rate rises. To cushion the impact of any hikes in interest rates he might be advised to go for a fixed rate mortgage. Here again there are plenty choose from and at the present time he may well be able to get a one-year fixed rate for the self-employed at 5.99%, although his CCJs would come under scrutiny in this case.

Longer term fixes may be obtainable, although being tied to a given rate for such an extended period of time could prove risky.

Lender Response

John Prust is sales and marketing director, SPML There are two things that Mr Jones must consider: first, whether a third rental property is advisable in the current rental/property market, and second (if he decides this is a good move) how best to fund it.

If I were in Mr Jones&#39 shoes, these are some of the points I would be considering. Borrowing to invest in property needs a lot of forethought as there is no guarantee that the value will appreciate. Indicators show that property prices are levelling while at the same time interest rates are edging up. It&#39s clear that all three properties currently owned by Mr Jones were bought in time for the recent buoyant market to raise their values (and his equity in them) by considerable margins. A third property, if purchased now, is not likely to increase in value so quickly, if at all. On the other hand Mr Jones appears to be an experienced landlord, already successfully managing two rental properties, so this experience should inform his decision.

Mr Jones also has to think about future rental market performance. Most commentators are still optimistic that the market is healthy and, with the age and average earnings of first-time buyers rising all the time, it seems likely to remain so for the medium term. The rental potential of properties is often concentrated in certain locations so Mr Jones must research the potential of his proposed buy-to-let property carefully. Once again, his experience should give him a good chance of commercial success.

Turning to the other set of considerations – the financial ones – Mr Jones seems to be in a strong position with some £270,000 equity across all three properties so remortgaging to purchase a third buy-to-let property should be possible while still keeping LTVs at a reasonable level. Income criteria are tied to rental rather than earned income so personal earnings are not an issue. However, now that he has a credit history containing CCJs and a bankruptcy Mr Jones will have to borrow in the non-conforming sector where his credit risk will be reflected in the interest rates on offer. From SPML&#39s own range of products, there are some options for him. His CCJs and bankruptcy limit his choice to our Let Scheme C at 75% LTV. By remortgaging his MPLC let property to SPML Let C he can raise £35,000 as a deposit. With this, he could benefit from a fixed rate of 6.24% until December 1 2005. This deposit will then allow him to buy a further rental property also on Scheme C to a value of £140,000 utilising his £35,000 deposit.

Further funds could be raised by remortgaging the Preferred loan to SPML&#39s light adverse Scheme D raising £88,000 at a discounted rate of 7.20%, until September 1 2005.

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