Q: I have five flats in a residential development. The five flats generate rental income approx £105,000 per annum. With no agent fees. The value is £2,300,000 We have a interest only mortgage of £1,060’000 tracker at 1.8% above libor. We also have a house
A:
As for your let properties mortgages with lender, 1.80% over LIBOR is a very good rate, so unless you wanted to raise funds on those flats, it’s best to leave them there. Lending margins on rental property are now running over 3% above cost of funding. It would also be difficult to raise funds here, because your rental income would restrict any more lending. The 1.06M at a stress-tested rate of 6% would cost 63k per year, and so the rental income of 105k doesn’t allow for much more lending. As for your main residence, it’s possible to improve the rate that lender would offer, because you have a good equity position where the loan to value ratio is 60%. We’d need to show the lender that you can easily afford the payments as rates inevitably increase. Generally, banks will lend 1.5m on your home if we can prove income of approximately £350k to £400k. The numbers you supplied for income from location shoots, holiday rental and your self-employment total about £230,000 – so I’d like to see if there is any other income, assets or investment income that we could use to show the bank that you can afford the mortgage. An income of £230,000 would mean that the mortgage is over 6 times your gross income and 11 times your net income, which wouldn’t be considered affordable.
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