Interest Free B T L Top Up Loan For Landlords

[Liquid Goldfish]

This sounds crazy. I'm not even sure I understand it.

It seems BTL landlords can now get an interest free top up mortgage. Instead of charging interest, the lender takes a percentage of the increase in the property value.

Apparently there's been huge demand from landlords wanting to supplement their pensions

Landlords are using a new form of “top up mortgage” as a way of boosting the incomes they can earn from their property investments.

The “top-up mortgage” - so far the only one of its kind - sits alongside the landlord’s main mortgage. But it works differently from an ordinary mortgage in that no monthly interest is paid. Instead, at the end of the agreed term, typically between five and ten years, the borrower settles the top-up loan by paying back the original capital, plus a slice of the property’s increase in value over the period. In this way some of the costs of the landlord’s total borrowings are deferred, and converted into a future, capital payment which could be made if the property is sold or re-financed.

Specialist property finance firm Castle Trust, which launched the scheme in November, said it had experienced “phenomenal demand”.

Some landlords are using it to increase the income they can draw from a property to supplement pensions or meet another need for income. Others are using it to buy properties where the yield - the rental income measured against the property’s price - is too low to satisfy mainstream lenders.

Here we explain the arrangement in more detail ...............

................................

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10590613/New-top-up-mortgage-lets-buy-to-let-landlords-borrow-more.html

http://www.castletrust.co.uk/equity-loan/

Edited January 23, 2014 by oldsport

[The Knimbies who say No]

This sounds crazy. I'm not even sure I understand it.

It seems BTL landlords can now get an interest free top up mortgage. Instead of charging interest, the lender takes a percentage of the increase in the property value.

Apparently there's been huge demand from landlords wanting to supplement their pensions

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10590613/New-top-up-mortgage-lets-buy-to-let-landlords-borrow-more.html

When BTL fails, just revert to the tried and trusted route to prosperity- MEW.

[bomberbrown]

Isn't this just a new form of the Home Appreciation Loan/Mortgage?

[longgone]

This sounds crazy. I'm not even sure I understand it.

It seems BTL landlords can now get an interest free top up mortgage. Instead of charging interest, the lender takes a percentage of the increase in the property value.

Apparently there's been huge demand from landlords wanting to supplement their pensions

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10590613/New-top-up-mortgage-lets-buy-to-let-landlords-borrow-more.html

http://www.castletrust.co.uk/equity-loan/

sounds like help to buy for landlords to me :angry: forget a crash if this takes off

Edited January 23, 2014 by longgone

[Andy T]

So they can borrow up to 20% of their existing BTL's value... doesn't say what the likely % share of 'profit' the lender would get, the example uses 10% but i'm sure it would be a much higher percentage to insure against properties that are going to DECREASE in value.

If lending gets any looser the banks will start injecting rolled £50 notes into the cavity walls of said BTL palaces

[Eddie_George]

If prices go down, they'll force you to sell to get back their stake. Must be some clause in there somewhere.

Edited January 23, 2014 by Eddie_George

[TheCountOfNowhere]

sounds like help to buy for landlords to me :angry: forget a crash if this takes off

Its no holds barred for the bankers and their bonuses for the next 18 months....they will FILL THEIR BOOTS.

The government will even fight europe to stop their bonuses being stopped.

Is it just me feeling that this is all wrong ( and about to collapse, law of unintended consquences ).

It seems Carney was THE MAN to bring back prosperity ( in the form of a debt fuelled property boom ) to the UK, no matter how short or long that boom is ( very short if yuo ask me ).

[Bruce Banner]

Yet another reason to vote UKIP at the next election. These jokers will stop at nothing in their bid to ingratiate themselves with their target voters.

[Bloo Loo]

So they can borrow up to 20% of their existing BTL's value... doesn't say what the likely % share of 'profit' the lender would get, the example uses 10% but i'm sure it would be a much higher percentage to insure against properties that are going to DECREASE in value.

If lending gets any looser the banks will start injecting rolled £50 notes into the cavity walls of said BTL palaces

Its a mortgage. therefore at the very least the firm takes the value in equity from the off...so a 20% of the current equity loan means you give up 20% of your equity...it seems they are charging 10%, but that would depend on the deal,

This is a variation of the now outlawed home equity loans that caught a load of people out in the late 1990s....they were very cross indeed when they found out that 40K they borrowed turned into 120K to repay along with the tripling of their house value.

[Clarky Cat]

Castle Trust are the company that do the "Housa" fund that tracks the Halifax index. Presumably these loans are part of the mechanism of the fund.

[Clarky Cat]

Also it may explain further why the Housa promises to pay more than the increase in the Halifax HPI - it's leveraged on landlord (and OO houses, looking at what they offer). If there's a drop in the HPI then the Housa losses are a proportion of the drop, between 75% and 33% depending on term over which you hold the fund, I suppose by the fact the loan still has to be repaid in full.

[Executive Sadman]

And still people say saving the banks was a good thing.

[drunkincharge]

Sounds like a Northern Rock 125% 'Lifestyle' loan for BTl'ers. It can only end the same way.

[long time lurking]

20% loan perhaps becomes a deposit for another BTL ? the banks will soon have a army of free caretakers who are paying the banks for the privilege

[Bloo Loo]

scheisters!

"PS Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it."

you dont repossess a house....you obtain an order for possession and sale.

[Splurge]

Wouldn't there be a tax implication in this? If you get an interest free loan from an employer it is a benefit in kind. If as a landlord can transfer some equity in a property in return for an interest free loan as an income to be paid at a future point in time seems to me something that should be taxed.

[monkeyman1974]

Yet another reason to vote UKIP at the next election. These jokers will stop at nothing in their bid to ingratiate themselves with their target voters.

vote ukip: get labour

[(Blizzard)]

vote ukip: get labour

So a vote for ukip is a guaranteed vote against the HTB party, even if UKIP lose.

What's the catch?

[(Blizzard)]

scheisters!

"PS Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it."

you dont repossess a house....you obtain an order for possession and sale.

If you're a landlording parasite then its someone elses home that'll be repossesed.

Edited January 23, 2014 by (Blizzard)

[Bloo Loo]

If you're a landlording parasite then its someone elses home that'll be repossesed.

possessed.

And yes, it would have been someone elses home.

Reading the comments on the article, it is still worrying how many economically illiterate souls there are out there. They dont understand equity, second charges, the meaning of payback or small print. Some are even calling this second charge equity loan a 125% mortgage....It may end up like that, but it certainly isnt like that at the outset....one would hope.

I have a feeling these are more akin to "instant equity" BS we heard some years ago...

[little fish]

If you're a landlording parasite then its someone elses home that'll be repossesed.

This is the problem - I could care less if people over borrow on the perceived value of their own property and face the consequences them selves. When the house is rented this is a completely different problem. And one that is specific to the UK. With rental anywhere in Europe this couldn't happen. Labour have caught on that there are votes if they strengthen the renters positions in tenancy but they haven't seen the big picture yet. It's more convenient for them not to see it.

Landlord licensing needs to include a financial assessment and at least 2 years of mortgage payments set aside to provide security for tenants. That would soon get rid of them (LL) and allow the houses back on the market - without LL competition the prices would start to reduce.

[(Blizzard)]

This is the problem - I could care less if people over borrow on the perceived value of their own property and face the consequences them selves. When the house is rented this is a completely different problem. And one that is specific to the UK. With rental anywhere in Europe this couldn't happen. Labour have caught on that there are votes if they strengthen the renters positions in tenancy but they haven't seen the big picture yet. It's more convenient for them not to see it.

Landlord licensing needs to include a financial assessment and at least 2 years of mortgage payments set aside to provide security for tenants. That would soon get rid of them (LL) and allow the houses back on the market - without LL competition the prices would start to reduce.

Landlording is a perfect example of the banality of evil. It is evil, but most people have become accustomed to it, so they don't think anything of it. And because it's on television and 'nice' middle-class people do it, no amount of pointing out the obvious will persuade them.

Still, how anyone can look at this - gambling with someone else's home - and think 'oh yes, that's a perfectly respectable business to be getting into', is beyond me. Willfull blindness I suppose.

It's shocking really.

Edited January 23, 2014 by (Blizzard)

[little fish]

Wouldn't there be a tax implication in this? If you get an interest free loan from an employer it is a benefit in kind. If as a landlord can transfer some equity in a property in return for an interest free loan as an income to be paid at a future point in time seems to me something that should be taxed.

Seems to be some ambiguity on the tax situation on the 118 site. They are hoping HMRC will see it their way. They probably will.

http://www.property1...andlords/44741/

I didn't realise that they could take these loans using their own properties as security. No CGT would then be payable.

Landlording is a perfect example of the banality of evil. It is evil, but most people have become accustomed to it, so they don't think anything of it. And because it's on television and 'nice' middle-class people do it, no amount of pointing out the obvious will persuade them.

Still, how anyone can look at this - gambling with someone else's home - and think 'oh yes, that's a perfectly respectable business to be getting into', is beyond me. Willfull blindness I suppose.

It's shocking really.

Gambling with someone else's home is the perfect catch phase. I might have to steal that.

Here is 118's take on the Castle Trust equity loan

http://www.property1...payments/44627/

Not surprisingly they seem to like it. As long as prices rise they will like it. If they fall they will just start another group action against the lenders.