Client Requirements
To refinance a main residence
Property value £5,500,000
Mortgage outstanding £3,000,000
Annual income from business £200,000
- 15 X standard income required
What was the situation?
Our client had a successful business in the real estate sector; he had been operating successfully for over 20 years. The client had a large remortgage requirement of £3,000,000, this rate was coming to the end of its term, and the existing lender was not willing to extend the loan maturity date.
The client owned a significant property portfolio and held other assets such as art and collectable cars. The property portfolio was leveraged to approximately 50% Loan to Value, and the rental income comfortably covered the buy-to-let monthly mortgage payments.
The plan was to eventually downsize to another property the client owned within their portfolio; this would be in circa 3 – 5 years when the children leave home for university.
What was the issue?
The issue we faced was proving affordability in the traditional sense.
The company net profits were circa £200k, which would normally only allow borrowing of circa £1,000,000 with a conventional lender.
We needed to raise a mortgage of 15 times the client’s earned income. (Most lenders only allow for 4 – 5 times income as a maximum loan).
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Advias' solution
We identified that the client could be classified as a High Net Worth Individual and therefore be treated differently by certain lenders. One possible solution was the equity in his property portfolio; this could be used to generate a theoretical income by way of sales, selling a property each year to generate funds for mortgage payments and lifestyle. However, it was the equity in his current home that we used to service the mortgage; by rolling up mortgage interest over the loan term, the mortgage and accrued interest would be repaid when the client downsized.
We negotiated a five year fixed rate with a lender that could apply a high net worth exemption and would roll up the interest for the term of the loan; this meant there were no monthly payments required as the loan interest was added to the loan each month. This solution got around utilising earned income to assess mortgage affordability and worked well with the clients who could enjoy their home for five further years before downsizing.
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