The 75 per cent loan-to-value product is priced at Libor plus 3.46 per cent and offered borrowers a minimum loan of £250,000 and a maximum loan of £500,000, with a 3 per cent arrangement fee. The other buy-to-let product is a 70 per cent LTV mortgage charged at Libor plus 3.16 percentage points, which also came with a 3 per cent arrangement fee and a minimum loan of £250,000, although the maximum loan allowance for this product has been extended to £1m.
Precise Mortgages confirmed that these products were launched in response to lower rental yields in London, where borrowers often failed lenders’ rental calculation tests if they were not able to put down a larger deposit.
According to the lender, calculations were typically based on whichever was highest from 125 per cent of the pay rate or reversion rate, meaning the gross rent must cover 125 per cent of the repayments at 5 per cent or more. Although the product has no geographical restrictions, the minimum loan size of £250,000 was said to favour properties in the southeast.
Precise Mortgages recently enhanced its buy-to-let product range by improving its 80 per cent LTV rates and reducing reversion rates on all its products to 5 per cent, from 5.50 per cent, except for lifetime trackers.
Alan Cleary, managing director of Precise Mortgages, said: “I was recently in a meeting with a London-based mortgage broker, who told me that they were having problems placing their BTL business due to the lower rental yields in London. Two and three-year deals are not always the right solution, especially where the reversion rate is significantly higher than the initial pay rate, and I am hoping this product helps to solve the problem.”
Alex King, executive director of London-based SPF Private Clients, said: “The buy-to-let sector is expanding rapidly as investors seek better returns than those available through cash or stocks and shares. However, one issue landlords face is tight rental calculations, making it tricky to purchase investments, such as lower-yielding London properties.
Precise Mortgages’ new rental calculation of 125 per cent of pay rate is, therefore, extremely welcome and likely to be popular with landlords, enabling them to gear up to 70 or 75 per cent loan-to-value.”
Both products came with a 3 per cent arrangement fee, which can be added to the loan. Early repayment charges, meanwhile, have been set at 3 per cent in year one and 2 per cent in year two.
This is an interesting product that could well appeal to what has been described as a lucrative rental market in the South East, even if house prices in this region are very high in comparison to the rest of the UK.
That said, although the tracker rates look good at the moment, it could be expensive when interest rates begin to rise, and borrowers must consider this factor, together with the early repayment charges.