The Client: The client owned a Trading Company which had been operating with a small net profit for a few years, from which he received dividends of £30,000. While he’d completed and sold a couple of smaller property developments in the past, this was his largest project to date and his first-time running holiday lets.
The Properties: The client had self-built two holiday cottages in the East of England. Both made from wood frame and concrete, one was a 2-bedroom and the other a 3-bedroom property with a hot tub. A local estate agent, specialising in holiday lets, had projected that the two would provide £46,000 rental income per year, due to the high-spec finish of the builds.
The Finance: The client came to us with just two months to pay off the bridging loan used to build the holiday let properties. Costing the client a lot in monthly repayments, we needed to source finance that would pay off the existing £310,000 loan and raise funds for future development projects.
The Challenge: This case had many complications:
- The property included 8 acres of land, part of which came with agricultural ties which may be a concern to some lenders
- The properties were new builds, which some lenders will not consider, let alone the fact they were new-build holiday lets
- Being new builds, we needed a lender who would work on the rental projections received from the local estate agent, rather than existing rental figures
- The timber frame aspect of the properties meant that many lenders consider them an ‘unusual construction’ type; restricting the number of lenders whose property criteria would include them
- In order to pay back the bridging loan, the deal had to complete within two months
- The client wanted one mortgage to cover both the properties
- The client had never run holiday let property before and was also only working part-time
All of these aspects meant that sourcing a suitable mortgage would not be straight forward as both the property and the client threw up hurdles when it came to lender criteria.
The Solution: We spoke to the client to gain an in-depth understanding of the development and his surrounding financial situation, in order to ascertain whether there was any additional security available should we need it. Despite only taking £30,000 in dividends, the client’s wife (who was not on the application) had an income of £55,000, which covered their day to day bills. The couple also owned a home worth £1.7million with plenty of equity, which was potentially additional security to offer a lender.
In addition to the usual bank statements, before we approached a lender, we requested the following:
- Business plan for the holiday homes
- Pictures of the land and properties
- Two projected rental figured from specialist estate agents to prove the demand for the properties as holiday lets
- All information and documentation surrounding the agricultural ties
With this information, we were able to use our knowledge of the market to approach a lender we believed would be willing to lend on this development and that would be able to complete the case within the tight deadline. After reviewing the information put together with the client, the lender accepted the application for one mortgage to cover both properties and without needing the client’s home as an additional security! Here are the details:
Property value: £800,000
Loan amount: £532,000
Rate: 4.89%, 5-year fixed
Term: 25-years, interest-only
Mortgage payment: £2,167 per calendar month
Lender arrangement fee: 1% (£5,320) added to the loan
Rental income: £3,833 per calendar month
Application: Trading Ltd Company
Consultant: Peter Barnes, 01732 471641
31st January 2020