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Dear Delia

Malcolm has a portfolio of 15 buy-to-let properties in Yorkshire and Humberside worth around 137,000 each with average monthly rental values of 650. His LTV is 70% and he wants to remortgage to a higher LTV to raise 300,000 to extend his portfolio. All mortgage payments have been made on time but he has some small County Court judgements and defaults from 12 months ago. What are his options? Delia says: Malcolm is in a fairly strong position and has several options. Lee Grandin from Landlord Mortgages and Lynsey Mitchell from Southern Pacific Mortgage Limited offer advice.

Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Intermediary response
Lee Grandin is managing director of Landlord Mortgages

Malcolm is in a relatively strong position. He has 15 buy-to-let properties which are providing a rental yield of about 5% and have sufficient equity in them to allow him to remortgage to buy more properties. The only small sticking points are the CCJs and defaults.

You may have already pursued this course of action but I suggest you sit down with your client and have a completely honest discussion as to what these CCJs and defaults entail. People are generally sensitive when discussing their financial situation and can occasionally stretch the truth so you must stress the need for honesty in this discussion.

Once this has taken place, you should have a better idea of where your client stands financially. It might also be a good idea for your client to buy an Equifax or Experian report to see how these defaults have affected his credit rating.

You must bear in mind that loan defaults are likely to have the biggest effect on Malcom’s ability to remortgage when speaking to lenders, and must work around this.

One benefit of having numerous buy-to-let properties is that a landlord has substantial buying power. I suggest you speak to a lender and find out if they are willing to put together a portfolio lending deal for Malcolm if he moves all his mortgages. This is a possibility and may mean that he gets a better deal.

To raise the 300,000 to buy additional properties it seems Malcolm will have to remortgage all his existing properties to 85% LTV. This does not strike me as a good course of action as it would mean he does not have any emergency equity if something should go wrong.

An alternative to releasing equity from all his properties is to sell the least profitable ones. As a landlord, Malcolm should be aware of all the financial health of all his properties but a profitability review is a good idea. Were his arrears and CCJs caused by the underperformance of a particular property? If so, it may be an idea to sell that property and release some equity.

Malcolm seems to have all his eggs in one basket. While property is a fantastic asset class, a little diversification would make his financial standing far healthier and help him avoid further repayment problems.

Lender Response
Lynsey Mitchell is regional manager at Southern Pacific Mortgage Limited

The latest half-year figures from the Council of Mortgage Lenders show that across all categories for which lending data is published, buy-to-let is in its strongest position ever.

Over the five-year period since 2000, gross advances by value have risen from 3.5% to 9% of total mortgage lending. Over the same period the total value of buy-to-let mortgages has risen from 9.1bn to 73.4bn and the number of mortgages outstanding has risen from around 120,000 to 702,000.

As the market grows, borrowing criteria become more favourable to borrowers. Maximum LTVs have risen on average from 75% to 85% over the five-year period and average rental affordability calculations have eased from 130% to 125%.

Factors often cited to explain the strength of this market include the low level of first-time buyers and the rental sector catering for those who cannot buy their own properties. Also, buy-to-let borrowers are increasingly confident of their ability to manage larger portfolios and are successfully taking on more properties. And first-time investors continue to enter the market.

SPML has followed the trend of the CML statistics and started to offer more attractive criteria to borrowers on its buy-to-let online product, which is only available via an online decision in principle.

Features of the SPML buy-to-let online mortgage that would fit this case include a top limit of 2m with unlimited property numbers. Using the details given in this case, raising the LTV on the properties to 85% would amount to borrowing around 1.75m, which is within the company’s borrowing limit.

If borrowing across the portfolio is at 70% LTV with an average property value of 137,000, raising the LTV to 85% would result in 308,000 extra cash, which would satisfy Malcolm’s requirements.

Regarding the question of affordability, SPML’s rental calculation for the online buy-to-let product is 110% of the initial payment for the fixed rate option and of the reversionary rate for the discount option, which is well below the industry’s average rental percentage, according to CML figures.

For example, if Malcolm opted for the three-year fixed rate option at 5.69% his monthly payment on a loan of 116,450 – which is 85% of 137,000 – would be 552 which is well within the 110% rental calculation of 607.

SPML’s buy-to-let online also accommodates 1,000 of CCJs and defaults in the past two years so Malcolm should be well within our lending criteria.

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