Multi-unit freehold block with some long leases remortgaged
The clients: The directors of a property company specialising in buy to let and residential developments. The business has two directors, four shareholders, three subsidiaries and a complicated income structure. Having worked with the directors on several occasions, we have a very good understanding of how the business operates, their strategy and their growth plans.
On this occasion they asked for our help in remortgaging a property to raise capital in order to make some further acquisitions.
The property: A four-storey block of seven flats in Croydon built by our clients in 2011. Three of the flats have been sold on long leases to third parties. The company retained ownership of the freehold of the building and rents out the remaining four flats on standard ASTs to a variety of tenants, some of whom are in receipt of housing and other state benefits. In total the four flats generate £4,450 in rent each month.
The finance: The directors were looking for a loan of 75% LTV which would allow them to pay off their existing lender and raise the capital required to put towards their next investment. Specifically, they asked us for:
- A two-year fixed rate
- Interest only payments with a maximum term of 30 years
- The property to be valued on a true investment basis
- A product that allows them to make mortgage overpayments each year without penalty
Because of the complex nature of both the borrowing vehicle and the property, we knew this deal would only get done with a specialist buy to let lender. In particular, we needed one that would accept an SPV with subsidiaries, complex income structures, multi-unit freehold blocks with some long leases, investment valuations and tenants in receipt of housing benefits.
We spoke to a few business development managers at some of the more specialist lenders to discuss the case. One lender stood out more than the others and so with our client’s approval we prepared an application.
The application process: To start, we created a breakdown of the business structure to carefully explain the dynamics of the company. On this point, the lender was comfortable with the complex nature of the business and agreed to accept an application because the two directors were the sole directors and the majority shareholders of both the main company and the subsidiaries.
An investment valuation rather than a standard valuation of the property was then carried out. This means that the property was valued to reflect the risk, returns and growth expectations. A standard valuation, which is usually applied to multi-units, assesses only the bricks and mortar value.
Just 42 days later a formal mortgage offer was issued. Our case manager then worked closely with the directors and the lender to ensure that the case was processed smoothly through to completion. Here are the details of the deal: