What is a Buy to Let Index Profit Share Mortgage?
This capital-raising mortgage product is a 2nd charge loan with no monthly payments. Instead the initial loan is paid PLUS a ‘profit share’. It is designed specifically for Buy to Let property investors and High Net Worth individuals.
The ‘profit share’ is calculated with reference to the independent Halifax House Price Index.
There are different repayment options available to the applicant. Loans are subject to a minimum repayment amount, typically between 2.5% – 5% per annum. This is based on total Loan To Value and repayment option.
- Available as a 2nd charge loan
- 1st charge loans are available for unencumbered buy to let investment properties
- Not reliant on rental income
- Product can be secured on buy to let properties
- Product can be secured on commercial properties for “wholly or predominantly for the purposes of a business”
- Product can be offered to High Net Worth applicants defined by the Consumer Credit Act. You must provide an accountant’s certificate to meet this test to the effect that (for the previous financial year):
– either the applicant’s net income after tax and national insurance was at least £150,000.
– or the applicant’s net assets exceeded £500,000 excluding any value locked up in the primary home, certain life assurance policies or any pension provision.
- No monthly payments
- The applicant must repay the loan at the end of the term.
If the loan is not repaid by the end of its term and the applicant does not have sufficient funds or it is not possible to arrange another mortgage at that time, then the applicant will need to sell the property that this mortgage is secured on.
- The amount that the applicant will need to repay is not unknown at the offset by nature of this specific mortgage product. The amount to be repaid at the end of the term will depend on the change from the Halifax House Price Index and repayment vehicle/sale of property.
An example of how a Buy to Let Index Profit Share Mortgage works
The lender advances £200,000 on a farmhouse in the East Midlands worth £1.5m.
The loan is repaid after 3 years, during which time the Halifax House Price Index has risen by 14%.
The principal loan is repaid PLUS 2 x the Index rise x initial loan.
The profit share amount works out as:
2 x 14% index rise = 28% profit share
28% x £200,000 loan amount = £56,000.
The total repayment is therefore:
£200,000 loan amount + £56,000 profit share = £256,000
NB: Please note that this example is not an actual case but a representation from a lender using a received application from a borrower.
Scenarios when this product may be of use
- If you are a Landlord, capital raising on your existing property / properties to expand your portfolio
- Capital raising to invest in your business
- Helping to buy a second home
NB: The cost of the loan may be significantly more than a traditional mortgage depending on the growth of the Halifax House Price Index.
Loans are subject to status, terms and conditions. The applicant’s property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.