The client: A part-time landlord looking to diversify his portfolio with the purchase of his first commercial property. As well as managing his three buy to lets the client also works as a car salesman.
The property: A new build commercial property comprising three office units, valued at £350,000. The property is located in an up and coming high street in Essex, with fast rail links to the city.
Currently vacant, the client was going to work with a local estate agent to source tenants.
The finance: With a deposit of £70,000, the client was looking for a loan to value of 80%. He had also requested that we source finance on interest only terms.
The following complexities meant that the finance options for the client would be restricted.
- No commercial experience – the majority of commercial lenders will not offer finance to first-time commercial landlords.
- 80% loan to value – a very high loan to value on a commercial purchase. Most lenders will only go up to 70% LTV.
- No tenants – most lenders will ask to see tenancy agreements before they make an offer on a commercial premise. As this property would be vacant at completion it poses a much larger risk.
- New build – the construction of the property had only completed six months ago. Only a handful of lenders will consider new build commercial units.
- Interest only terms – most lenders will only offer capital and repayment.
- Tight timescale – the vendor had only given the buyer a 50 day window for the transaction to complete.
The application process: With only 50 days to complete we got straight to work and approached a new lender to the market. This particular lender can be relied upon for its flexible, common sense approach to lending, offers rates to 80% loan to value and interest only terms. At present it can only be accessed via Mortgages for Business and four other brokers.
Whilst we reviewed the application and liaised with the business development manager, the client worked with his local estate agent to gain rental income projections.
After careful negotiation, the lender agreed that the proposed plan for the unit would be a success. An offer was made within 8 working days of application!
Here are the details of the deal:
Property value: £350,000
Loan amount: £280,000
Rate: Libor +5.35% Variable Rate
Term: 20 years
Mortgage payment: £1400pcm
Lender arrangement fee: 1.50% of the loan amount
Rental income: £3150pcm
Consultant: Peter Barnes, 01732 471641
15th June 2018