Hi Carlo,


No worries. The quick deal stacking calculation we like to use goes like this:


Monthly rent x 12 divided by (product interest rate) divided by (product rental stress).

For example:

Interest rate: 5.65%
Rental stress of product: 125%
Monthly rent: £1200.00.

So: 1200 x 12 divided by 5.6% divided by 125% = £205,718.

If the net price of the property was £250,000 and you had a 75% LTV mortgage, you would only require a borrowing of £187,500. Therefore this deal stacks very comfortably on these parameters.

However, if you had an 85% LTV mortgage, you would need the rent to support a borrowing of £212,500. Therefore, you would need to put an additional £6,782 into the deal to make it stack.

So, while the lower LTV's mean that we have to put bigger cash deposits in, the flip side of this is that it makes it easier to stack deals and get reasonable positive cash flow! If you have purchased with a significant discount you have quantifiable equity built in from the day you purchase the property. This is a nice safety cushion for the future as no one can call how the market is going to behave in the forseeable future.

In the current market conditions, we believe you should be achieving 25% t0 30% discounts - we are! However, discounts are no good if the deal doesn't stack on the achievable rent.

So, in conclusion, we believe that determining what borrowing the rent will support is a fundamental way of quantifying the intrinsic value of a property i.e. whether it works as a viable business proposition with positive net income from the monthly rent.