Buy-To-Let and Commercial Mortgages
Property Investment Mortgages, more commonly known as Buy-To-Let and Commercial Mortgages, is the name given to long term funding for the acquisition (or refinance) of property assets which are let out to tenants and the rental income services repayment of the loan.
Market Sectors
- Residential, HMO, Student, Semi Commercial, Commercial.
Single assets and portfolios
Leverage
- Up to 85 % LTV for Residential and HMO properties.
- Up to 75 % for Semi - Commercial and Commercial properties
Maximum leverage is determined by two factors. Firstly, an absolute cap applied by any given lender (determined by their credit policy) and secondly by the ratio of rental income to interest charge (DSCR – Debt Service Coverage Ratio) (again determined by a lender’s credit policy). So, whist a lender may apply a maximum cap of say 75% LTV, the actual LTV offered may be less if the rental income is insufficient to service a loan at maximum LTV cap.
LTV’s and DSCR will vary from lender to lender and asset types.
DSCR’s from 125% at pay rate (and from 110% if a lender will consider other, non-rental, income).
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Pricing and Repayment Profile
- Interest charged may be variable and linked to Bank Base Rate or Libor (or other Cost of Funds) or may be a fixed rate. The charging structure may be for an initial period or for the full term of the facility.
- A lending fee is normally charged by lenders upon drawdown of the loan.
- Many lenders charge a penalty for early repayment of the loan within the early years of the term.
- Terms range from 1 – 40 years (for residential investment properties).
- Repayment may be of only the interest charge or interest and the capital sum, or part thereof.
- Pricing will depend upon the nature of the asset (Residential assets generally attract cheaper pricing than Commercial assets), LTV’s (the higher the leverage, the higher the risk to the lender and therefore the pricing), the covenant of the tenant and term of the lease (Commercial assets) and potentially the covenant of the borrower
Location
England, Wales, Scotland, Northern Ireland.
Borrowing Entities
- Sole Traders, Partnerships, LLP’s, Ltd Co’s, Trusts and Offshore Vehicles.
When the vehicle is to be a Ltd Co, lenders will often prefer it to be a Special Purpose Vehicle, or SPV, set up for the specific project and owning only the project asset.
Where the borrower is to be an Offshore Vehicle full disclosure and audit of the directors and beneficial owners is required.
Security
- 1st Legal Charge.
- Debenture (incorporated borrowers).
- Personal or Corporate Guarantees (incorporated borrowers - as a norm).
Who is lending?
High Street Banks, Building Societies, Challenger Banks, Specialist Property Funds, Institutional Investors, Pension Funds. Many lenders will only accept applications from the broker network and not directly from the public.
Loan Size
At Optima we broker Buy-to-Let and Commercial Mortgages from £500k to £ Multi M.