CONNECT MORTGAGES - 'Borrow an extra 20% of your property's value with no repayments'

Dragon_of_Consumer_Power

Yeah, after doing more digging and having conversations with them, that seems to be the case.

I have actually done some calculations and projections to work out if this is a good idea or not:

Present Value = £175,000
Projected Value in September 2025 = £250,000
Value Increase = £75,000

(I have used September 2025 as that is the end of my current mortgage term and hence the end date used by Connect Mortgages for the lifetime of this loan product.)

Fixed Loan Costs = £750 (valuation + legal)
Variable Loan Costs = 2% of loan

(In September 2025 they will seek full repayment of the loan and a profit. That profit is calculated as 2x the original loan % *as their % of value increase*, i.e. if you borrowed 10% initially, their profit % would be 20% of the value increase.)

SCENARIOS:

10% of current house value = £17,500 loan
Variable Costs = 2% = £350
- Fixed Costs, too
Receivable = £16,400
Repayable = Loan + 20% of value increase
Repayable = £17,500 + £15,000
= £32,500

15% of value = £26,250 loan
Variable Costs = 2% = £525
- Fixed Costs, too
Receivable = £24,975
Repayable = Loan + 30% of value increase
Repayable = £26,250 + £22,500
= £48,750

20% of value = £35,000 loan
Variable Costs = 2% = £700
- Fixed Costs, too
Receivable = £33,550
Repayable = Loan + 40% of value increase
Repayable = £35,000 + £30,000
= £65,000

Now, the thing that concerns me a bit is how I would repay all of this in 2025. If I sold the house, it would be easy - I'd get my £60,000 deposit back* and my % of the value increase, which would easily allow me to pay off the outstanding amount while ensuring I still made a profit.

But if I didn't want to sell in 2025 (why would I if it's generating more in rent than the mortgage costs?), then I'd have to remortgage the house with another lender. At that point Castle Trust would demand payment (loan repayment + % of value increase) - but where I would get the money from if my deposit remains locked into the house and if I can't profit from my % of the value increase?

Even if the value increased to £250,000 and the new lender offered 75% loan-to-value ratio, that would still mean they'd only lend £187,500 and I'd therefore have to deposit the remaining 25% = £62,500. In other words, unless I'm missing something, how the heck would I repay the loan and the profit through just remortgaging?

* The property is a BTL with a £60,000 deposit and a £112,500 loan. Property price in 2010 hence was £172,500. Four recent valuations put the price today at £179,950 but I'm being conservative with my £175,000 projection.