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SPV Ltd Co refinances commercial unit with only 12 months remaining on lease

The clients: Three business partners from North London. The trio operate a successful property investment and development business. Each partner has an equal shareholding in the company.
Between them the trio own in excess of 75 rental properties. The majority of these are commercial property.

Having recently bought a new commercial unit via auction finance, the directors were now looking to refinance the property to repay the loan, they were also hoping to raise capital for further investment.

The property: A commercial unit let to a discount furniture store in a seaside town in Kent. The current tenant only has 12 months remaining on the lease.

The finance: The trio were looking for a five year interest only loan at 70% LTV. In total they were looking to borrow £385,000. They were particularly keen to source finance from a lender which does not imply large ERCs.

The application process: There were a few sticking points with this case which would restrict the number of finance options available.

  1. The remaining lease. The current tenant only has 12 months remaining on the lease. The majority of lenders will not accept anything under two years.
  2. The location of the property. The seaside town has suffered in the past few years. Although local business is still stable, the area is not in high demand.
  3. The tenant is not a blue chip company. Lenders feel more comfortable lending to well-established businesses with a good reputation.
  4. Requested term. The trio were looking for a term between two and five years and were keen not to get locked into a rate with hefty ERCs. Most commercial mortgage lenders will only consider terms over five years. Early repayment charges tend to be higher than those for residential too.

We took the case to a relatively new commercial lender, which we have semi-exclusive access to. In fact, currently only five brokers are working directly with this lender which can be relied upon for its flexible, common-sense approach to underwriting complex deals.

The lender made an offer with early repayment charges at 1.5%. The majority of commercial lenders set ERCs at circa 4%. Delighted, the trio accepted.

Here are the details of the deal:

Property Details

Property value: £550,000

Loan amount: £385,000

LTV: 70%

Rate: 5.90% Variable

Term: 5 years Interest only

Lender arrangement fee: 1.5% of the loan amount

Mortgage payment: £1,892pcm ( Interest only )

Rental income: £5,416 pcm

Consultant: Peter Barnes, 01732 471641


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