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GMAC-RFC buy to let loan rings alarm bells

Those who are worried about the buy to let market overheating might be alarmed to learn that lender GMAC-RFC is advancing up to 89% on buy to let loans.

 

Those who are worried about the buy to let market overheating might be alarmed to learn that lender GMAC-RFC is advancing up to 89% on buy to let loans.

Brokers confirm that this is the highest loan to value available in the market. Up until now Northern Rock had the highest LTV at 87%.

The mortgage is available only on a three-year fixed rate basis at a hefty 6.25% which may deter some borrowers. The crucial factor is the percentage rental cover required. Most lenders are insisting that rental income must be at least 130% of monthly mortgage repayments. Clearly, the lower the mortgage charges, the larger the percentage loan that the borrower can afford.

Last week broker Charcol launched a very competitive buy to let five or ten-year tracker mortgage linked to US Three Month Libor. The loan has a concessionary initial pay rate of only 2.99% until the end of June of this year.

Thereafter it is 1.95% above US three month Libor on the five-year deal or 1.65% above US Libor on the ten-year package. This gives pay rates of 4.61% and 4.31%. The mortgage is a sterling loan so there is no currency risk. But with such a low interest rate, it is possible for buy to let investors to borrow the maximum.

For example, a buy to let investor wanting to borrow £100,000 on the Charcol five-year tracker loan would have interest charges of £385 a month and would need rental income of £500 a month to borrow the maximum loan to value of 80%.

With the GMAC loan the monthly interest charge would be £520 and the borrower would need rental income of £676 a month to borrow the maximum – although this could be up to 89% of the purchase price.

Full details of the Charcol offer on www.charcol.co.uk or Tel: 0800 718191. For further information on GMAC Residential Funding visit www.gmacrfc.co.uk

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