Higher rate loans

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    Higher rate loans

    I have sourced a loan which is a second charge taken across the remaining equity in my property portfolio. My portfolio is at approximately 75% LtV. The gross value across 5 properties is £2.2m with outstanding mortgage balances of £1.5m soon to rise to £1.7m. I am hoping to release approximately £140 000 through traditional capital raising via remortgaging. The rates here will be circa 3.5-4%. The additional product which I would like some guidance on has a rate of 14% per annum. I can borrow up to £400 000 if I want but would only look to borrow approximately £100 000. I am not adverse to taking risk. I am a small property developer and have employed the strategy of buying houses and developing them into HMO's. I know the rate is high but I would look to pay whatever I borrowed back as soon as the project was completed and would factor this in to my budgeting. Could I use this sort of finance as a percentage of the money used to develop? Is their a formula that developers use when utilising loans with this king of interest? Could I use it to buy, develop and sell somewhere? I would like to make use of these funds but want to do so in the most prudent manner possible; and to minimise the potential of not being able to pay back the loan and therefore saddled with extortionate interest rates resulting in the writing off of any potential profit. Any advice or guidance around this would be much welcomed.

    #2
    Are you sure your mortgage lender will consent to a second charge on the portfolio?
    I think the question might be academic, because I'd be amazed if they would.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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      #3
      I agree completely with JPKeates, it is a matter which taxes any broker when clients are seeking to release equity but their present lenders do not offer further advances; I suspect that you have already investigated this and have been redirected to a type of lender of last resort” who creates a legal instrument which circumvents the requirement of obtaining the 1st mortgagee’s Consent , the downside is that the rates are extraordinarily high with tough terms attached.
      Before you leap into the abyss of borrowing is there no leeway in gearing up on one or more of the current properties to raise the nominal sums required even if you have to Remortgage. With the present uncertainty in the property sector borrowing at 14% is high risk borrowing.

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        #4
        From what I understand the second charge is levied against individual properties until the required funds are raised. I.e. £100k against property 1, £80k against property 2 and so on. The lenders I currently use (BM and Aldermore) allow second charges as I have had them previously. If I was to move forward with this type of borrowing what percentage of the total amount of deposit and or/or development costs would you attribute to this type of higher rate borrowing?

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