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To think that banks have no logic to mortgages?

(12 Posts)
AdrianMonk Wed 03-Aug-11 19:18:43

Why would a bank lend me 150% more to purchase a buy to let property than a residential property?

I want to buy a property to live in but can't afford to do that, but can afford to buy a house to rent it out, and rent somewhere myself. Where's the logic in that?

I can either afford a house or not in my opinion, but not the banks.

RevoltingPeasant Wed 03-Aug-11 19:39:27

Really, I had no idea. How weird. You would think it'd be the opposite, seeing as getting tenants to pay the rent/ mortgage must be much ropier than relying on a salary.

Or perhaps not, these days confused

HeatherSmall Wed 03-Aug-11 20:22:53

I would grab it with both hands then and forget to rent it out grin

AdrianMonk Wed 03-Aug-11 20:22:58

It's ridiculous isn't it?

The one thing I have to prove with the buy to let mortgage is that I can afford the repayments myself if I didn't have a tenant. Which I can. But they won't lend it to me never having a tenant in.

The banking world's gone mad I tell you!

AdrianMonk Wed 03-Aug-11 20:24:07

HeatherSmall I only wish I didn't have a conscience otherwise I so would!

HeatherSmall Wed 03-Aug-11 20:25:21

The banks haven't got a conscience I can assure you.

LDNmummy Wed 03-Aug-11 20:27:59

I don't know zilch about mortgages, but this sounds really stupid!

I might look into it myself though grin

AdrianMonk Wed 03-Aug-11 20:28:43

That's very true

I'm sat here at the moment with Miranda style 'What have you done today to make you feel proud?' everytime I see your name.

Got one over on the bank is that enough to make me feel proud???!!! grin

HeatherSmall Wed 03-Aug-11 20:30:33

Oh good that was the idea grin

I'd do it just to get one over on the banks even if I didn't want the house personally, but that's just me.
Now is a good time to pick up a lot more house for your money if you can get 150% i'd bite their hand off.

TheSugarPlumFairy Wed 03-Aug-11 20:56:30

The problem is that buytolet mortgages are underwritten in a completely different way than residential mortgages. The risk appetite is completely different even though on paper it may seem to be the same organisation.

To the layman it may seem mad but essentially the money the bank is prepared to lend is put into separate pots for different types of lending and is administered by completely different departments if not completely different spin off organisations. How the money is lent will be worked out by those managing bodies based on its profit goals.

Buy to let mortgages are usually more forgiving in terms of loans to value and salary caps because you will be charged a significantly higher interest rate and set up fees, and also as a business venture there is a certain element of risk that is accepted that just wouldn't be by a residential underwriters. Also believe it or not but there is still a market for commercial mortgage derivatives so the banks flick the debt to share market investors reasonably easily. The residential underwriters can't really do that anymore.

TheSugarPlumFairy Wed 03-Aug-11 20:56:31

The problem is that buytolet mortgages are underwritten in a completely different way than residential mortgages. The risk appetite is completely different even though on paper it may seem to be the same organisation.

To the layman it may seem mad but essentially the money the bank is prepared to lend is put into separate pots for different types of lending and is administered by completely different departments if not completely different spin off organisations. How the money is lent will be worked out by those managing bodies based on its profit goals.

Buy to let mortgages are usually more forgiving in terms of loans to value and salary caps because you will be charged a significantly higher interest rate and set up fees, and also as a business venture there is a certain element of risk that is accepted that just wouldn't be by a residential underwriters. Also believe it or not but there is still a market for commercial mortgage derivatives so the banks flick the debt to share market investors reasonably easily. The residential underwriters can't really do that anymore.

AdrianMonk Wed 03-Aug-11 21:15:10

Ah thanks for that you made it makes sense - but really only sensible in the banking world not the regular world grin

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