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Accessing buy to let mortgage with no early repayment charge

March 31, 2021
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As a niche mortgage specialist, we are often asked about buy to let mortgages and early repayment charges. Typical questions include:

  • What rates and fees can I expect with a no ERC mortgage?
  • What criteria do I need to meet to access this type of mortgage?

There are many reasons borrowers want access to a no ERC buy to let mortgage. These include:

  1. They are looking to renovate the sell the property quickly, but don’t want to access bridging finance due to the associated costs.
  2. They want to purchase a property, let it out for a specific period of time and then convert it to a residential mortgage.
  3. They want to renovate the property and want the option to remortgage once the value has increased.
  4. They plan to sell another property to reduce the balance on the newest property.
  5. They want the freedom to switch to a five-year fixed-rate mortgage when rates look like they are set to rise.

In general, these are the criteria you will need to meet in order to secure a buy to let mortgage with no early repayment fees.

  • Must be a residential homeowner.
  • This must be a purchase or remortgage, so not a first-time-buyer.
  • You must have at least a 25% deposit.
  • Cannot accept DSS tenants.
  • The minimum property value must be £75,000.
  • The minimum income must be £25,000.
  • Total value of property portfolio cannot exceed £5m.
  • Terms must not continue past 80 years old.
  • You must have an excellent credit history.

What would a no early repayment buy to let mortgage look like?

The following example is based on a purchase price of £175,000 with an interest-only mortgage of £131,250 over 25 years.

Option 1: two-year LIBOR tracker mortgage

Initial rate: 3.80% (APR 5.4%)

Valuation fee: free

Arrangement fee: £1,312.50

Admin fee: £150

The mortgage repayments start at £415.63 per month for two years. After this time, the mortgage reverts to the lender’s variable rate.

In addition to these charges, there is a funds release telegraphic transfer fee of £50. There are no early repayment charges. On full redemption, there will be a funds release fee of £90 and a sealing fee of £150.

Option 2: lifetime variable mortgage

Initial rate: 4.05% (APR 4.2%)

Valuation fee: Free

Arrangement fee: £749

Booking fee: £250

The mortgage repayments would start at £442.97 per month and remain the same for the lifetime of the mortgage.

In addition to these charges, there could be a telegraphic transfer fee of £20. There are no early repayment charges. Once paid in full, there is simply a mortgage discharge fee of £125.

Things to note before moving forward

There isn’t much competition between lenders for this type of mortgage simply because lenders want long-term customers. There isn’t much interest in short-term relationships, so you may find that rates and fees are higher than with other mortgages.

Making your capital work for you is a trick that requires experience and expertise. We have access to a range of mortgage brokers who can help you to make your investments work harder. If you’re looking to secure a buy to let mortgage with no early repayment fees, our team can help to connect you with the right brokers. Get in touch or explore our buy to let guides to find out more.

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