De-levaraging by Landlords

Paying down your loan
The talk about ‘landlord town’ is all about ‘de-leveraging’.

This means landlords and property investors who have financed their buy-to-let investments with cheap credit are looking at ways of reducing their debt as the value of their property investments fall.

For the latest news on buy-to-let mortgages check out the mortgage monkey’s blog posts.

A sign of the times is that one of the leading buy-to-let mortgage providers of recent years Mortgage Express, part of the failed and now nationalised Bradford and Bingley building society, rather than offering landlords more credit have recently introduced their Choices scheme.

This enables their buy-to-let borrowers to make regular over payments to their account without incurring any charges. A landlord who has made over payments to their mortgage account, into a so called ‘reservoir account’ to build up a Choices ‘credit balance’ will have a number of future options:

Payment holidays
Having made over payments a landlord could take a break from mortgage payments for a maximum of six consequtive months.

Underpayments
Landlord can use their balance to make underpayments until it has been used up

Drawing back cash
Landlords can use this free facility twice a year to take back overpayments they have made in cash.

These options are only available to a landlord if their total loan to value is below the maximum level Mortgage Express set on their buy-to-let mortgage, at the time at which they applied to use the Choices facilities. To find out more, call Mortgage Express on 08457 248 248.

Is there a catch?
The catch with the scheme if there is one, is that a landlord needs to be within their LTV agreement at the time they apply for these credit facilities. The danger a landlord faces is that having paid down their buy-to-let mortgage that just when they need payment flexibility or cash; then because of falling property prices they are prevented from using this facility because of their LTV has increased above that originally agreed.

Will I be making over payments?
I’ve got several Mortgage Express loans and have seriously considered signing up for the Choices scheme given that I am as keen as any other landlord to de-leverage.

However, several things have stopped me. Firstly with both mortgages being Bank Base Rate related, I’m actually basking in the warm glow of low and falling mortgage payments. With payment rates on one of my mortgage at only £140 before the latest interest rate cuts it makes little sense to repay a debt where I can get more in interest on a deposit balance than it costs in interest.

Personally, I would rather build up a cash balance in my rental business account to safeguard myself against harder times and unexpected expenses such as boiler repairs or a potential rental voids.

If rates start rising significantly as they inevitably will do, but not probably for several years, I will revisit the situation. At the moment I am happy building up a little cash cushion rather than risk being cash trapped as a result of the rising Loan To Value on a specific property.

Property Hawk comment
Many other buy-to-let mortgage providers allow overpayments on the landlords mortgage account but frequently have slapped on charges or restrictions about doing this. I suspect that after years of encouraging landlords to borrow more, BTL lenders will make it increasingly easy for landlords to make additional payments to their BTL mortgage account without charges and any way they choose.

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