“Six months of trying…I wish we had met sooner”
- A client was having difficulty in financing the purchase of his next home.
- At a purchase price of £9M, he had been unable to find a lender who could accommodate the loan level he needed.
- There were three main issues which were causing concern with the banks he had spoken to:
- He had income from several non-UK jurisdictions.
- Even if his overseas income were to be accepted, it was not enough to cover the loan amount he needed.
- He needed a high level of borrowing because he had yet to cash in from selling two of his existing properties.
- We obtained a loan approval for £8.5M, whereby the bank was asked to take security over the two existing properties and the new £9M home.
- This, despite the fact that his combined personal and rental incomes could only support a loan of £5M.
- The structure was achieved by proposing that the bank deduct 36 month’s interest from the £8.5M loan. This money would then be pledged specifically to meet the payment shortfall on the remainder of the £4.5M his income could not cover.
- The structure allowed for a cross-collateral charge over the sales proceeds of his other properties, allowing the bank to reduce the loan back to an acceptable level, once they sold.
- This arrangement allowed the client to:
- Fund 91% of his £9M purchase.
- Buy without having to sell his existing properties first.
- Have ample time to market and achieve a fair price on his properties.
- Pay only what he could afford, since the balance of the loan interest payments for the next three years were already accounted for.
“So many moving parts”
- A client requested our help to re-mortgage her £16M property portfolio in order to raise funds for purchasing further investment properties.
- The portfolio consisted of a multitude of mixed units ranging from small multi-unit freehold blocks, commercial units, studios below 30sqm in size and standard single-family dwellings.
- We approached a single lender for the entire portfolio, requesting a 75% interest-only loan over 15 years.
- After the client and the portfolio were fully assessed and the loan was approved, the case was sent to board level for Credit Committee sign-off. However, instead of signing off, the Committee concluded that 75% loan-to-value was too aggressive.
- In a bid to reduce the loan-to-value, they mandated an initial interest-only period of 12 months followed by a repayment structure for the remaining term.
- However, they had not appreciated that the change in structure from month 13 onwards would mean the loan payments and rental income would reach parity; thus eradicating any cash-flow buffer between the two.
- We successfully argued that the unintended consequence of reducing their loan-to-value risk, as proposed, would result in the loan serviceability risk becoming markedly stressed instead.
- We suggested they keep to the interest-only structure for the life of the loan but to release the client’s equity on simultaneous purchase of any new properties.
- The new properties would be acquired within the fold of the portfolio, thus adding to its overall value and thereby reducing the loan-to-value risk, whilst simultaneously adding more rental income to boost loan serviceability.
- The proposal helped the client to achieve her aims and helped both parties from a potential problem in the making.
UK & Overseas Investors
“They almost cost me a small fortune”
- An ex-pat based in the Gulf was purchasing an investment property in London for his daughter.
- Given she had no income, his previous broker advised him to purchase the property jointly with her because it would need his income to support the loan.
- His lawyer added that since he already owned a property, a new joint purchase would trigger an unavoidable 3% Stamp Duty surcharge of £30,000, which the client would have to be resigned to paying.
- It was after they were turned down for the mortgage that his accountants referred him to us for help.
- Our concern was not just to obtain the mortgage but to try and mitigate the £30,000 surcharge. To this end we found a bank who could accept a “Joint Borrower, Sole Proprietor” mortgage, for an ex-pat, on a buy-to-let basis.
- This meant the loan could be issued in joint names, thus fulfilling the income requirement but the ownership would be his daughter’s alone, thereby mitigating the £30,000 surcharge.
“Why couldn’t they join the dots?”
- We were approached by a client who was rejected for a development loan because the bank had concluded the profit margin on his project was not high enough for their risk appetite.
- The bank’s concern was, should the client find his project to be commercially unviable, he could be tempted to stop further funding, abandon the development and leave the bank to bear the problem.
- We could see that despite being a capable and experienced developer, the client had two issues. His presentation to the bank was poor and his knowledge outside of development finance was not extensive enough to offer a different perspective.
- Nevertheless, the bank’s loan terms were too good to disregard, so he agreed for us to approach them again on his behalf. When we did, we chose a different angle of approach:
- First, rather than approach the bank’s Development department, we initially engaged with their Investment Property department.
- They concluded that once the property was built it could generate sufficient rental income to support a loan of up to 75% of value. This was greater than the development loan the client was originally seeking.
- Next, we approached the Development team to explain the client’s plan was to keep the property for long-term income and not to realise a profit from selling.
- This removed their original concern that the client might potentially walk away; because his commitment to the project was driven by long-term income, not short-term profit.
- Nevertheless, the Development team resisted, citing it was unlikely that the client could find a lender who would re-finance the development loan.
- In anticipation of such an outcome, we then produced the in-principle approval we had obtained earlier from their colleagues in the Investment property team.
- This proved that the re-finance was not only possible but that it was from within their own group; thus giving the bank the ultimate level of control and comfort they needed to reverse their original decision.
- In conclusion, we helped the client obtain a development loan through the same bank who had initially rejected him.