The property: A three-storey block of 4 flats and granted planning permission for a small office, located in South London and built in the early 1900’s. All the flats had leases but they were all still owned by the freeholder, this meant the lender would lend based on the freehold value. The flats were already let on ASTs but not at the market value. Therefore, the lender would need to investigate further as they would usually lend based on the passing rents, but without using the market rent the lender wouldn’t of been able to achieve 75% loan to value.
The finance: The director was looking for a loan of 75% LTV which would allow them to purchase the freehold and also leave enough cash for the build of the office without using development finance.
– A two-year fixed rate (They wanted flexibility after 2 Years to re-finance @ a higher value including the office)
– Interest only payments with a maximum term of 25 Years
– The property to be valued on the market rent and value
Due to the complex nature of both the borrowing vehicle and the property, we knew this deal would only get done with a specialist buy to let lender. In particular, we needed one that would accept a non-experienced new start SPV company. Also, we needed to consider the property being a multi-unit freehold block with planning investment opportunity and tenants currently paying under market value.
We spoke to a few business development managers at some of the more specialist lenders to discuss this case. One lender obviously wanted the deal more than others as they were not worried about having the borrower having no income full stop nor experience within the UK property market. They were willing to focus more on the assets and liabilities and make a judgement based on the client’s success on other non-related businesses and ventures.
The application: Firstly, we set out the client’s background and also an assets & liability statement showing the client’s net worth. We also explained to the lender of what the situation and outcome would be once the client had purchased the unit. We further clarified that despite bridging usually being the best route due to the risk for a term lender, a bridging loan would not be advisable for the client in these circumstances and would have caused unneeded expense.
The lender requested to see certain documents, such as proof of assets and 12 months of bank statements for all UK and international accounts. This gave an idea of what the client’s spending habits were. Although this is a non-regulated finance option, due to the client’s lack of real business background in the last 7 years in the UK, the lender deemed it necessary to request such information. It was a way to give the lender an idea of whom they were lending to.
An investment valuation rather than a standard valuation of the property was then carried out. This means that the property was valued to reflect the risk, returns and growth expectations. A standard valuation, which is usually applied to multi-units, assesses only the bricks and mortar value.
Just 17 days later a full mortgage offer was issued, and the Solicitor dealt with the enquiries which were all quite standard procedure. Merely 2 months later, the property was completed on the below terms.
Property value: £925,000
Loan amount: £693,750
LTV: 75% LTV
Rate: 3.69% 2 year fixed
Term: 25 years interest only
Lender arrangement fee: £13,875 (2% added to the loan)
Mortgage payment: £2,175.94 pcm
Detail correct at the time of sourcing their deal.