BTL Mortgage - which one

Sam_41

Hi,

Background

I bought a house 2.5 years ago with my brother, which suited us very well as we could put forward a decent deposit between us.

The house was bought for £100k and we put down £30k between us, on a fixed deal the monthly repayment is only £260 each and on a 15 year term.

As the mortgage cost is low & house sharing reduces living costs further, I've been able to save up £25k in that time which I'm looking to invest. I can't make a repayment on the mortgage as ERC are extortionate and it complicates things as my brother isn't in a position right now to do the same.

Which has led me to consider investing in a property, letting it out for 5 years or so, then at that point I will probably be looking to have my own place and move in myself.

I've scoured the market over the last 6 months and finally found a property which ticks all the boxes, both from a rental perspective and also for myself further down the line. I've done my research on BTL, and landlord issues (some excellent guides on MSE, This Is Money, BBC, and great existing threads on this forum). I'm prepared that it's not easy work, and there are extra 'hidden' costs to factor in when letting: void periods; letting agency fees; problem tenants; repairs; EPC/electrical inspections; income tax; time commitment (!); but I still want to take the plunge.

The property

The property is a 2 bed semi, I'll be making an offer of £85k which I hope will be accepted. I'll put forward 30% deposit which at £85k would be £25.5k. My gross pa is £31k (I also receive bonuses but haven't factored this in to my budgets as it's not guaranteed), and expect a rental of £500-£550, which should cover the 125% of mortgage monthly payment which I believe is a lender criteria.

The property is already tenanted until September.

The Mortgage

There are the mortgages I'm considering (all 20 year term):

1. Virgin BTL 5 year fix, fees total £1,848 (valuation, arrangement, land registry), monthly repayment £372, APR 4.5%, ERC 5% of outstanding loan. Cashback £750 on completion*
2. Coventry BS BTL variable, fees total £2,129, monthly repayment £364 APR 3.9%, base rate 4.74%, £0 ERC. This is for the term duration 20 years, so IF the rates were competitive it could avoid expensive fees every few years. But would the initial interest rate of 3.79% go back to the lender's base rate after a set period?
3. Bank of China tracker, fees total £2.2k, monthly repayment £357 APR 4.3%, initial rate 3.88%, ERC '1% of original loan first year'**. Duration for term 20 years. This one is a 75% max LTV so it gives me the option of putting down a 25% deposit and allowing more leeway.

I would be looking to make repayments on the mortgage to reduce the interest payable, the downside of the Virgin 5 year fix I would have to invest the money as best I could (utilise ISAs and consider a regular saver to build savings) then make a lump repayment after 5 years of hopefully £25-30k. Would I be able to do this after 5 years penalty free whilst I'm remortgaging? The other 2 are more facilitating of early repayments.



The fixes <5 years I don't think are worth it as the fees are high on BTL mortgages and I don't fancy paying them every 2 years!


Now to me the standout is the Virgin product as the fees are lower, particularly considering the £750 cashback, and the security of knowing what my monthly payment amount for the next 5 years will be is fantastic. I'm really hoping this is a no brainer and Virgin is the winner, I hope you can understand I just want a little piece of mind as it's a huge decision.



*Is this cashback after the 5 year period?

** Just to clarify after year 1 I can make repayments without penalty?


I have found a few online mortgage calculators but is there one which will split the repayment amount in to capital and interest amounts?

GMS

You cannot compare a fixed to a tracker to a variable.

If you want security of payments then a fixed is the one you may wish to consider. The 5 year fix as you say means no fees every 2 years to change.

The cashback is paid on completion so can offset some of the fees or the legal bill.

Virgin allow 10% overpayments per annum so you could look to use this facility if you chose to.

_Andy_

"as ERC are extortionate" - if they are 'extortionate' (which they aren't) why did you choose this mortgage product?

Sam_41

GMS wrote: »

Virgin allow 10% overpayments per annum so you could look to use this facility if you chose to.

Thanks I didn't realise this, it makes the product even more appealing, especially as it can be paid monthly by standing order.