Buy to let advice for a client refinancing & dividing property portfolio

THE SCENARIO

About a year ago I helped this particular landlord to refinance his property portfolio and offered him some buy to let advice. The portfolio differed from many in that my client had originally bought the property as an old nursing home before converting it into eight flats, choosing to sell only one, live in the penthouse and rent out the remaining seven for the last year. However, he had recently decided that he wanted to buy a family home in the same area, valued at £1.3 million, part-selling some of his portfolio in order to raise the finance. He was seeking buy to let advice and determining the best way in which to go about doing this.

The problem was that his usual income (circa £35,000) as a self-employed solicitor was not able to support this level of borrowing – according the usual income calculation he would only have been able to raise £160,000 at this level. The ancillary income that he generated from his buy to let properties did not have a sufficient income history for most lenders to consider it as “income” for further borrowing.

This meant that he came to me seeking buy to let advice – namely a solution that would enable him to raise money against the cumulative buy to lets and purchase the new property outright. The main problem with this situation was that usually a buy to let landlord has multiple proper ties spread over different areas and buildings. However, my client owned the freehold of the building and he also owned all of the leases on the flats. When a landlord owns multiple properties in the same building lenders consider them to be overexposed – seven properties in the same building certainly falls into that category!

OUR SOLUTION

My client sold three of his properties and I suggested that the best buy to let advice was to keep the rest of his portfolio in order to sustain an income. I then suggested that we would remortgage the remaining four so that the landlord could sustain his ancillary rental income and retain the proper ties as a stable investment. That meant that I had to find four separate lenders that were comfortable with the proper ty being outside London (this limits the number). I also had to find four separate lenders that were comfortable with him only being self-employed for two years. Furthermore, all of these lenders had to be comfortable with the fact that the client was nearing the end of his career (mid-fifties). The further complication was that one of these lenders had to have a very low rental calculation so that the client could borrow more than would typically be allowed in order to raise adequate finance. The lower the rental calculation the more money is able to be released. The final terms for the four properties were: 1. 5 year product, interest-only, 8 year term, 3.99% 5 x year fix 2. 5 year fix, interest-only, 12 year term, 3.95% 3. 12 year term, lifetime tracker, 3.93% + 3 month LIBOR 4. Applied to existing lender for additional borrowing – 2 year fixed rate, 4.39%. This solution and buy to let advice enabled my client to finance the property he wanted to buy outright whilst maintaining the income he generated from his buy to let portfolio.

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