The Client: The director of a software development company approached us looking to purchase his third rental property using a separate SPV limited company.
The Property: A 2-bed apartment in a high-rise, mixed-use block (37 storeys) located in Birmingham city centre. The building comprises:
- Two commercial units on the ground floor both leased to well-known high street chain stores
- 158 residential apartments on the upper floors
The director already owns two flats within the block, both of which have increase rapidly in value since being purchased in 2016. At the time of contacting us, he owned both flats on separate buy to let mortgages with the same lender.
The Finance: Originally, the director approached us with a 30% cash deposit for the new purchase. However, appraising the options, we calculated that it might be more efficient to use a portfolio loan structure, i.e. refinance the existing flats to raise cover the entire cost of new purchase, and thus allowing our client to keep hold of his cash.
The Application Process: There are very few lenders in the market which offer portfolio loans and will consider such a complex scenario. Not only are the flats within a high-storey, mixed-use block, the loan also needed to cover all three properties, without an additional deposit.
We have a strong relationship with the director’s existing lender, so we sat down with the business development manager and discussed whether such a financial solution could be agreed. The BDM felt there was a deal to be done and so took up the case with the underwriters and the credit committee. After a bit of negotiation and clarification, we got the go-ahead to submit an application along with a business plan, three years’ accounts, as well as the usual proofs of ID, address and income.
The valuation report confirmed that the three flats were worth a total of
£1,142,500, which meant the bank would allow the client to borrow up to £724,500. The loan would cover the new purchase and repay the current mortgages on the other two flats. We then got the bank to further agree a discounted rate and waive the standard exit fee because the director was an existing customer. Delighted with these terms, the director accepted the formal mortgage offer and the application proceeded without a hitch through to completion.
Property value: £362,500 for the new purchases (£1,142,500 for all three flats)
Loan amount: £724,500
Term: 10 years
Borrower: SPV Ltd Company
Mortgage payment: £2,567pcm (inc. lender arrangement fee)
Lender arrangement fee: 1.5% (10,865) of which 1.25% (£9,056) is added to loan
Rental income: £6,750 pcm
Gross yield: 6% pa
Consultant: Andy Elley, 01732 471644
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15th May 2018