The Clients: Property investment business partners, our clients owned a portfolio over of 40 properties. While one was fully self-employed, the other’s sole income came from rent generated by the portfolio.
The Property: Located above a commercial property in a popular Lake District town, the two-bedroom flat was perfectly situated for holidaymakers wishing to access the surrounding countryside and local amenities. Having owned the property for several years, our clients had rented it on a standard assured shorthold tenancy to the tenants of the commercial unit below.
The Finance: Purchased with cash a number of years ago, the property was unencumbered. When the existing tenancy agreement ended, our clients took the opportunity to refurbish the flat and take advantage of the booming holiday industry in the area. They were looking to remortgage the property onto a high loan to value holiday let mortgage to release equity to fund further investment property purchases.
The Challenge: As the flat was above a commercial unit, our lender options were limited. Depending on the nature of the business below, the resale of these properties can be difficult, which puts lenders off as, should they ever repossess the property, it’s more difficult to recoup their money. The type of business can also impact the maximum loan to value lenders will offer too, which could affect how much equity our clients could release for their onward purchase.
Additionally, the pandemic had negatively impacted the self-employed director’s income, which could put some lenders off. Furthermore, as some lenders don’t accept borrower’s whose sole income comes from rent, this could further restrict our choice of lenders and mortgage rates.
Lastly, as the flat had not previously been a holiday let, there was no trading history to prove the potential income. As always in this circumstance, we’d need to acquire a holiday let rental income projection from a suitable agent to provide supporting documentation for the application.
The Solution: With independent access to the whole of the holiday let lender market, we shortlisted several lenders that accepted flats over commercial and would consider our landlords complex income positions. Taking into consideration available rates, we approached one which evaluates applications on a case by case basis.
To ensure a smooth process, we packaged up all the documents and financial paperwork we knew the lender would need to see in order to evaluate our clients’ various income complexities. We highlighted that although the pandemic had impacted the self-employed director, the business had strong accounts and was already making a recovery. Having assessed all our supporting documentation, the lender was content neither income streams would be a problem for the application.
Although the commercial unit below sold food, the valuer was confident it would not impede the resale or rentability of the property. Consequently, we could secure the maximum 75% LTV our clients wanted to release maximum equity from the property.
Lastly, we were able to get a holiday let rental income prediction from a reputable local agent. Due to the area’s popularity, the agent knew the property would attract plenty of business, and the lender was comfortable with the projection.
Our clients are now making the most of the booming holiday let industry with the property and, with the desired equity released, purchasing another property for their portfolio. Here are the details:
Property value: £350,000
Loan amount: £262,500
Rate: 3.74% two-year discounted rate
Term: 25 years, interest-only
Mortgage payment: £818 per calendar month
Lender arrangement fee: £3,208
Application: SPV Limited Company
Consultant: Robin Tait, 01625 416391
5th May 2021