I recently secured a complex loan for a client who was looking to buy a property in Hampstead worth £4 million. Despite its high value the property was unmodernised, so was bought for £3 million due to the complete revamp that was necessary. This already caused problems for valuers as it meant the property was undervalued without a finished product to go by.
As the Managing Director of a large firm, my client had a basic salary of approximately £400,000. He also received bonuses, both in cash and some in vested stock, which was released over a 3 year period. He wanted a large section of the loan to be on an interest only basis with £300,000 on capital and repayment and the rest on interest only.
The nature of this request and my client’s income was a stretch for any high street bank, so proving affordability was a struggle with every lender. My client didn’t have any repayment method in place for the interest only part of the loan, so we needed someone who would be willing to take a view on the future worth of the property. This was a particularly unusual case for a loan of this size, which would normally require investments and stock shares or other properties in place to repay the mortgage.
Overall, this case was a big stretch affordability wise and probably my biggest challenge yet. Securing a large interest only amount purely on the sale of a property is almost unheard of. Most lenders would not take a view as my client would still be paying rent whilst the property was renovated. He was also paying around £60,000 in school fees, so these very large outgoings all had the potential to affect affordability.
Luckily, I was able to find a specialist, private bank, who was willing to take a view in this way. This was an excellent example of the more holistic approach private lenders take, especially due to the state of the property.
Taking all my client’s bonus income into account – including the vested stock - I managed to secure a £2.1 million loan at 70% loan to value (LTV) on a mixed term, at a competitive 2 year fixed rate of 2.58%. I was also able to extend the repayment part of the mortgage so it was longer than the interest only part – allowing an additional 5 years to help with repayments.