Help mortgage offer changed what should we do?

krishna

Applied for 100k BTL mortgage with Abbey at 5.4% was approved. In the end decided we probably only needed 80k so asked to revise amount. What I didnt realise was that this would then mean a completely different offer, this time at an interest rate of 6.54%. Just found that out today when the new offer arrived in post. Can we still use the first offer? What should we do? Both offers say they are valid until Feb 08

A_Nice_Englishman

Go with the first offer and immediately repay £20K? Assuming there are no penalties for doing this.

krishna

We can repay 10% of loan amount per annum without penalties. That's a good idea. So both offers will presumably still be valid?

A_Nice_Englishman

You'd have to check with Abbey, but unless there's anything in either offer to say otherwise I can't see why the first offer wouldn't still be valid.

Work out how much interest you'll get on the surplus £10K and how much interest you'll pay. Remember that mortgage interest is an allowable expense if you're running a property rental business. I bet the difference will be pretty small.

dunstonh

You could consider this as a wake up call that what you are doing is likely to be wrong.

Unless you have managed to pick up a property dirt cheap or in an area with high rental yields, then you are likely to lose money on this property. Even at 5.4% you are pushing it and certainly would be at 6.54%. Rental yields are generally around the 5% or lower mark (with the exception of some hot spots).

Plus pressure on property values is down with the first drops in property funds since 1992 (the last property crash) having just occured in the last 3 months and chartered surveyers reporting a decrease in prices on valuations and even the IMF saying that the UK has the potential for a bigger price crash than the US (although there are some caveats in there such as planning restrictions and availability which may hold it up).

Are you sure this is the right time to go into a high risk investment like a mortgaged buy to let?

This little problem on the offer letter could be a chance for you to review the position and decide if it is the right thing for you to do or not.

krishna

It's a house we already own. Bought another to live in (no mortgage). Haven't fully decided whether we might want to move back in a few years. Mortgage is for only 30% of property value in any case. Rental income should cover mortgage even if interest rates climb to 13%. That was what we based our calculations on.

jill2002

Go back to Abbey and ask them to amend the first offer - there is NO REASON why they can't do that. In any case the first offer still stands as the funds should have been 'booked' - You have it in writing that it is valid till Feb 08! I assume you are doing a 'Property owned Mortgage Free' (POMF) remortgage?