Part interest only terms at 75% LTV on refinance of 4 shops

This case was processed using our Packaging Service for intermediaries who do not have direct access to certain lenders which operate via restricted distribution panels.

The clients: Three brothers who run a successful property investment business. Their portfolio consists of both residential and commercial property.

Looking to expand their portfolio, the brothers were hoping to refinance four commercial properties which they had purchased just over a year ago.

The properties: Four independent shops in a small parade in Manchester, a short walk from the station. Three of the shops are held under one title, the other is held on a separate title.

Property one: Is a women’s clothing shop with two years and two months remaining on the lease

Property two: Is a fast food outlet with two years remaining on the lease

Property three: Is an electronics shop with four years remaining on the lease

Property four: Is a mobile phone sales and repair shop with five years remaining on the lease.

The properties generate an annual rental income of £90,000.

The finance: The brothers had requested the following:

• One loan facility across the four properties
• A loan amount of £674k (75% LTV) – most lenders cap commercial investment mortgages at 70% LTV
•  Interest only terms up to 20 years – most commercial lenders cap interest only at 10 years
• Low early repayment charges for the first five years - most commercial lenders charge between 3-5%
• An option to overpay without penalty – most lenders limit overpayments to 10% of the outstanding loan amount per year (if they offer this option)
• A lender arrangement fee that does not exceed 1.5% of the loan amount

It was for these reasons that the clients’ broker was hoping to source finance from a lender which is only accessible via a select panel of brokers, including Mortgages for Business. The USPs of this lender include:

• Loans up to 80% LTV
• ERCs at 1.5%
• Interest only terms up to 20 years
• Lender arrangement fee of 1.5%
• Overpayments of up to 15% pa without penalty
• Manual underwriting – a common sense approach

The application process: We supplied the clients’ broker with the lender's application form and a list of supplementary requirements, including proof of ID, address and income, tax returns and company accounts. Once all of the information had been collated, we checked it thoroughly and submitted the application. A positive decision in principle was issued just a few days later.

Whilst the case was being underwritten we received a call to say that the lender was concerned by the combination of a high loan to value and interest only requirements. As such they would only be comfortable lending on “part and part” terms (90% interest only and 10% capital and repayment). We informed the broker, who advised his clients. The clients chose to accept these terms part and a formal loan offer was issued. From application submission to drawn down of funds the entire deal was completed in less than two months.

Here are the details of the deal:

Property Details

Combined value of the 4 shops: £900,000

Combined loan amount: £674,000

LTV: 75%

Rate: Variable rate of 5.90%

Term: 20 years part and part (90% interest only, 10% capital repayment)

Lender arrangement fee: £10,110 (1.5% of the loan amount)

Mortgage payment: £3,318 pcm

Combined rental income: £7,500 pcm

Gross annual yield: 10%

Consultant: Peter Barnes, 01732 471641

Are you an intermediary looking to place a complex buy to let or commercial deal? Call Peter today to find out how we can help. Or visit MFB for Intermediaries. Remember, your client remains your client!

4th December 2018