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SarahBell

Virgin money advert .. the figures - or your maths homework. You choose.

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Our buy-to-let and consumer buy-to-let mortgage criteria

The maximum loan to value for a buy-to-let mortgage with Virgin Money is 75%.

Your minimum personal income (excluding income received from buy-to-let properties) needs to be £25,000 per annum. If your application is in joint names, the combined minimum income will also be £25,000.

The rental income must cover 125% of the mortgage interest, calculated at a notional rate of 5.74% or the pay rate of the selected product, whichever is higher.

You or a joint applicant must have been an owner-occupier of a property for 6 months or more.

------
Calculate for a house costing say £50k, £100k, £150k 

and show the income yield after the new tax changes come fully into effect.

Please show your workings and state the differences when you put the rents up.

 

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Raise rents innit?

Im surprised they not raised cover to 145% yet.

The apr is still too low for the Basel3 changes.

Is it IO?

Rounding up, then on an Io basis a150k house, would require a 120k mortgage, which will cost ~8k at 6%, . Youd need rent of ~11k .

Anyone know any 150k houses that i can rent for 900/month?

Shove repayment in then these costs almost double.

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From VM's page:

Consumer buy-to-let explained

Introduced by the Mortgage Credit Directive and expected to impact a small proportion of existing buy-to-let customers by offering some additional consumer protections, such as the Financial Ombudsman Scheme, depending on the customer’s individual circumstances.

At Virgin Money, our entire buy-to-let mortgage product range is available to consumer-buy-to-let customers. The standard buy-to-let lending criteria will also apply.

We will determine during the loan application process whether the loan is buy-to-let or consumer buy-to-let.

If you have any questions please contact us and we’ll be happy to hel

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18 minutes ago, spyguy said:

Rounding up, then on an Io basis a150k house, would require a 120k mortgage, which will cost ~8k at 6%, . Youd need rent of ~11k .

Anyone know any 150k houses that i can rent for 900/month?

The c.£150k properties in my area may rent for £600-750 a month.

Hopefully another nail in the BTL coffin.

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2 minutes ago, hotairmail said:

All they have to do is buy off plan via Singapore, borrowing the money they need over there. And then it just appears as 'cash' to the Bank of England and they're happy.

Just watch the builders direct all the uk based BTL landlords in that direction. Think it won't happen? Think it's not happening? Where there's an incentive, there's a human. 

 

No problem with. Let the Singaporeans carry the risk.

Not that Singaporens banks would lend to uK nationals, earning in sterling.

Rich chinese yep.

 

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For a house costing £150k.

Maximum loan is 75% of £150k, so the max loan is £112,500.

Rental income must cover 125% of the mortgage interest at 5.74%. Notional rental interest is £112,500 x 5.74% = £6457. So rental income must be 125% of that so must be £8071.

So rental income needs to be £675pm or more, rounded figures, on a house costing £150k. That's not unachievable.

Income yield is unknown, because that depends on the actual cost of the mortgage loan. The actual cost is likely to be a lot less than 5.74% though.

And to a borrower with income of say £30k, or dual borrowers with income of £20k each, there is no issue regarding the removal of higher rate tax relief on BTL costs.

I think BTL is a stupid idea, wouldn't touch it with a bargepole, but that's because of capital loss, maintenance costs, bad tenants and voids. In my view these numbers aren't really the horror story that they might first appear to be.

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13 minutes ago, Butthead said:

For a house costing £150k.

Maximum loan is 75% of £150k, so the max loan is £112,500.

Rental income must cover 125% of the mortgage interest at 5.74%. Notional rental interest is £112,500 x 5.74% = £6457. So rental income must be 125% of that so must be £8071.

So rental income needs to be £675pm or more, rounded figures, on a house costing £150k. That's not unachievable.

Income yield is unknown, because that depends on the actual cost of the mortgage loan. The actual cost is likely to be a lot less than 5.74% though.

And to a borrower with income of say £30k, or dual borrowers with income of £20k each, there is no issue regarding the removal of higher rate tax relief on BTL costs.

I think BTL is a stupid idea, wouldn't touch it with a bargepole, but that's because of capital loss, maintenance costs, bad tenants and voids. In my view these numbers aren't really the horror story that they might first appear to be.

Also if your earning 30k with 11k rental income then with S24 your skirting the edges of the higher tax bracket, so a 2nd BTL would be even less  economical.

Edited by goldbug9999

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57 minutes ago, Butthead said:

For a house costing £150k.

Maximum loan is 75% of £150k, so the max loan is £112,500.

Rental income must cover 125% of the mortgage interest at 5.74%. Notional rental interest is £112,500 x 5.74% = £6457. So rental income must be 125% of that so must be £8071.

So rental income needs to be £675pm or more, rounded figures, on a house costing £150k. That's not unachievable.

Income yield is unknown, because that depends on the actual cost of the mortgage loan. The actual cost is likely to be a lot less than 5.74% though.

And to a borrower with income of say £30k, or dual borrowers with income of £20k each, there is no issue regarding the removal of higher rate tax relief on BTL costs.

I think BTL is a stupid idea, wouldn't touch it with a bargepole, but that's because of capital loss, maintenance costs, bad tenants and voids. In my view these numbers aren't really the horror story that they might first appear to be.

Whilst I always feel like a supposedly potty-trained toddler who's just soiled themselves when I use the term "gross yield" in the way the BTL goons use it, I will hold my nose and press on...

When the BTL gang use the term gross yield they mean the ratio of the rental income (before any costs) to the cost of the house.

On your numbers, that means that the lender is willing to finance new purchases or re-finance existing purchases on a yield of 5.4% when the LTV is 75%.

However, if you look at this (admittedly VI, but from a VI with an interest in being optimistic) LendInvest chart of "rental yields" you'll see that except for a few small pockets, a yield of 5.4% is above the yields the market is offering.

Hence, whilst there is no horror story, the reason why some of us feel that the incoming PRA changes are significant is that they implicitly take 75% LTV mortgages off the table. Sure, in principle, if you could find a high enough yielding property you could borrow 75% LTV, but in practice very few properties are able to support an investment financed on those terms.

With each investment needing more equity (i.e. cash down from the investor) the same amount of equity flowing into the market buys fewer properties and is supplemented by a smaller amount of credit flowing into the market.

The significance of the changes is their likely effect on so-called price momentum.

Note also that there is every chance that before 1 January 2017 Virgin will have ammended that ratio between interest and rent (the Interest Cover Ratio, ICR) to somewhere higher than 125% - Nationwide are at 145% at present. With an ICR of 145% the yield needed on your numbers for 75% LTV to be financed is 6.2%.

Obviously, people already in the market are affected by changes to the basis under which new financing arrangement are assessed in two ways; firstly when they want to refinance on to a more competitive rate, but also when they want to 'cash out' of the market. The changes in the financing arrangements reduce the number of people who are in a position to cash out existing investors; the new investors need to have much more than 25% of the purchase price as good cold cash - which is much harder to come by than easy credit.

Edited by Bland Unsight

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Good post Bland Unsight, don't disagree with any of that. You're absolutely right that their yield requirements effectively reduce the LTV available, which removes some participants from the market, and I guess those participants are the ones with less money for a deposit so perhaps are the ones who aren't higher rate tax payers.

So higher rate tax payers are discouraged from the market by changes to higher rate tax relief. And basic rate tax payers are discouraged from the market by lower LTVs being available in practice. Sounds like a win-win to me.

 

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So higher rate tax payers are discouraged from the market by changes to higher rate tax relief. And basic rate tax payers are discouraged from the market by lower LTVs being available in practice. Sounds like a win-win to me.

2 hours ago, Butthead said:

I think BTL is a stupid idea, wouldn't touch it with a bargepole, but that's because of capital loss, maintenance costs, bad tenants and voids. In my view these numbers aren't really the horror story that they might first appear to be.

https://www.youtube.com/watch?v=E_BoAXopS54

Edited by winkie

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1 hour ago, Butthead said:

Good post Bland Unsight, don't disagree with any of that. You're absolutely right that their yield requirements effectively reduce the LTV available, which removes some participants from the market, and I guess those participants are the ones with less money for a deposit so perhaps are the ones who aren't higher rate tax payers.

So higher rate tax payers are discouraged from the market by changes to higher rate tax relief. And basic rate tax payers are discouraged from the market by lower LTVs being available in practice. Sounds like a win-win to me.

So still a goer if you are on benefits?

Edited by spyguy

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4 hours ago, Butthead said:

For a house costing £150k.

Maximum loan is 75% of £150k, so the max loan is £112,500.

Rental income must cover 125% of the mortgage interest at 5.74%. Notional rental interest is £112,500 x 5.74% = £6457. So rental income must be 125% of that so must be £8071.

So rental income needs to be £675pm or more, rounded figures, on a house costing £150k. That's not unachievable.

Income yield is unknown, because that depends on the actual cost of the mortgage loan. The actual cost is likely to be a lot less than 5.74% though.

And to a borrower with income of say £30k, or dual borrowers with income of £20k each, there is no issue regarding the removal of higher rate tax relief on BTL costs.

I think BTL is a stupid idea, wouldn't touch it with a bargepole, but that's because of capital loss, maintenance costs, bad tenants and voids. In my view these numbers aren't really the horror story that they might first appear to be.

Might not be possible where you are but I suspect it is in plenty of other areas. Have you checked LHA recently?

I did check mine recently and found identical houses on my side of the street have a 34% higher LHA than the other side which is the neighbouring council

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4 hours ago, Butthead said:

For a house costing £150k.

Maximum loan is 75% of £150k, so the max loan is £112,500.

Rental income must cover 125% of the mortgage interest at 5.74%. Notional rental interest is £112,500 x 5.74% = £6457. So rental income must be 125% of that so must be £8071.

So rental income needs to be £675pm or more, rounded figures, on a house costing £150k. That's not unachievable.

Income yield is unknown, because that depends on the actual cost of the mortgage loan. The actual cost is likely to be a lot less than 5.74% though.

And to a borrower with income of say £30k, or dual borrowers with income of £20k each, there is no issue regarding the removal of higher rate tax relief on BTL costs.

I think BTL is a stupid idea, wouldn't touch it with a bargepole, but that's because of capital loss, maintenance costs, bad tenants and voids. In my view these numbers aren't really the horror story that they might first appear to be.

Is 'income yield' another made up term by BTLers that completely disregards risk adjusted return?

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3 minutes ago, Si1 said:

Is 'income yield' another made up term by BTLers that completely disregards risk adjusted return?

What risk? Just raise the rents innit..

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Oh yeah I'll just add - I really (really) do hope prices fall, I really do. But I just can't see it myself. 

 

Renter loosers.

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