Second Charge –  Flexible Home Owne Loan

Client background

Mr Trent was a builder who had an opportunity to purchase a property as an investment. Unfortunately he didn’t have the deposit available at the time but didn’t want to miss out on this fantastic investment opportunity. This is when he came to Teesside Money to see if we had any solutions. The property needed some work and he was confident he could increase the value of the property fairly easily without spending a lot of money on the work. Most of which he could do himself as he was a builder.

Know the numbers

After completing a fact find and understanding the clients circumstances in detail. We were then quickly able to advise Mr Trent that he would benefit from a Flexible Home Owner loan. He and his wife had a good income and had the equity in the family  home to be able to secure the funds.  Their property was valued at £230k and they had a Mortgage of £110k.  They were able to raise a new loan of £75k (80% LTV). This is loan to value and is the total secured borrowing divided by the house value. You can generally go up to around 85% LTV on this type of product.

Product information

The beauty of this product is that it is flexible, giving the client the flexibility to have the funds available and only pay interest on whatever balance he draws down into his bank account. He bought the house for £55k and was able to complete the purchase quickly as he was a cash buyer. After spending £20k on the property they managed to increase the value to £105k and then re finance the property onto a BTL mortgage at 75% of the new value and obtain a BTL mortgage for £78,750. The flexible loan could then be repaid in full. This then  made the funds available to draw down again when they find the next property.

Key Features

Obviously the key to this is first of all finding the right property. That’s the hard part. You then need to be in good position equity wise and have the household income to support the loan. The client is able to redeem the loan in full at any time or make a large capital repayment. Interest is only paid on the balance outstanding. Although the loan was agreed with a 20 year term the flexible element is live for the first 5 years. During  this period you can repay and withdraw the funds from the pot as many times as you want. Once the flexible period ends the loan is a fixed repayment for the remaining term.