Affordability issues can hold back a BTL investment strategy. But that doesn’t mean there are no ways forward when they emerge.
At Market Financial Solutions, we have a range of tools at our disposal to make the ICR fit. They may prove especially useful where landlords may not be able to generate quite enough income from their assets as they’d like.
Let’s take our residential, fixed-rate BTL mortgages as an example. Our minimum ICR for a 2-year fixed residential BTL mortgage is currently 125%. A borrower may apply for a 2-year fixed loan of £500,000 with a 5% interest rate.
To meet the required ICR minimum, they’d need to generate £31,250 in rental income from the property. But, given a decline in the market, and/or certain legislative limitations, the borrower in question can only generate £25,000 in income.
This isn’t enough, but that doesn’t mean we can’t find a solution for them. To make the deal work, we could utilise a rolled-up interest plan.
With rolled-up interest, the borrower could cover our funding using only £20,000 from their rental income, and roll up the remaining £5,000. Over the 2-year fixed period, the rolled-up interest would allow the borrower to hit that 125% ICR minimum.
Us as the lender would need to ensure the exit strategy was also solid to keep this deal feasible. There are many potential options here, although one of two are likely to take precedent. The borrower could plan to refinance with a long-term lender as they reached the end of our facility – for which we would need to see evidence and clear planning. Or, they could sell the rental property and use the proceeds to cover our loan.
So long as the exit strategy fits in with their circumstances, we are happy to accommodate it. Also, rolled-interest is just one of numerous options we can utilise to support expanding landlords. We’re happy to share all our options with those who reach out to us.
