We were approached by a client looking to raise capital on his home – a two-bed leasehold flat in a block of flats above a newsagents in SW London.
The client, who is a landlord and developer, wanted the finance in order to expand his property portfolio.
When he first spoke to us he had owned his home (unencumbered) for just two months.
Previously, it had been owned by his father in trust for him but has recently been transferred to his son for nil consideration.
We had to overcome many challenges to find a suitable lender for this deal:
- The client has owned the property for less than six months – many lenders require property to be owned for a minimum of six months before it can be remortgaged.
- The client’s salary and dividends from his limited companies were not sufficient to support many lenders’ affordability tests.
- The client wanted interest only terms – interest only on a residential mortgage is not readily available unless the borrower has a credible repayment strategy or very strong annual income.
- The flat is above a newsagents shop – properties above commercial units are less desirable for residential mortgage lenders because they can be difficult to sell in cases of repossession.
- One of the client’s limited companies owns the freehold of the block of flats – many lenders say no to transactions where the leaseholder and the freeholder are related (known as associated transactions)
We approached an intermediary-only lender that was willing to consider the application.
After much negotiation the lender not only agreed to accept the business profits as part of the affordability calculation, it also agreed to part interest only terms because the client could demonstrate a clear exit strategy through his business.
Here are the details of the deal.
Property value: £600,000
Loan amount: £350,000
Rate: 1.39% 2 year tracker
Term: 20 years: £300k interest only, £50k capital & interest
Lender arrangement fee: £999
Mortgage payment: £591 pcm