The London property market has attracted significant attention in recent times as a consequence of Brexit, the economy and political uncertainty. Despite this uncertainty there is continued interest from overseas investors looking to take advantage of currency movements and long-term prospects. We were recently approached by an American national living and working in South Korea looking to refinance an unencumbered property in central London. Even though the property was valued at a modest £800,000 it is not difficult to see the challenges faced when attempting to secure a refinancing.
While the details of the client scenario were fairly basic and straightforward, the challenges were obvious. The full details of the client’s scenario were as follows:-
Property to refinance: Two bedroom flat, central London
Property value: £800,000
Mortgage funding: £400,000
The client was looking to raise £400,000 on a relatively low LTV of 50% which gave us scope to negotiate competitive terms. The fact that the property was debt free was a positive and the fact the funds would be used to expand the client’s property portfolio offered an additional degree of security. However, in many ways it was the client’s living and working situation which would prove most crucial to securing an appropriate funding structure and competitive rates.
Issues to address
The challenges here are obvious, a foreign national living and working outside of the UK looking to refinance a UK property. Funds raised would be used to expand the client’s property portfolio and take advantage of the short term malaise in the market. It is fair to assume that additional properties would be available to the private rental market offering a degree of security. The main issues to consider included:-
Wealth: Limited UK footprint with wealth located overseas
Income: The majority of income from overseas
UK bank accounts: None
Mortgage funding: £400,000
Mortgage interest rate: Variable
Mortgage term: 5 years
On the surface an LTV of 50% is within the traditional boundaries for this type of scenario. We assume that the client had significant income living and working in South Korea. Expansion of their property portfolio is also a positive going forward, creating a rental income stream and potential for long-term capital growth. However, the client did not have a UK bank account which is mandatory for UK banks offering mortgage finance.
As with the vast majority of our clients, especially foreign nationals and those working overseas, the rigid structure of traditional UK banks would not be welcoming of the client’s requirements. We therefore began investigating opportunities in the private banking sector spreading our search far and wide.
The lack of a UK bank account and/or direct debit mandate facility was always going to be an issue with UK-based mortgage lenders. During our investigations we began discussions with a Guernsey based lender that was open to the idea of receiving mortgage payments from an overseas account. We were determined to ensure that a lack of UK banking facilities would not prevent the client from raising additional investment funds. As a consequence, we were able to secure a tailored solution to the client’s requirements:-
Mortgage type: Interest only
Variable interest rate: 4.25% plus Bank of England base rate
Mortgage term: 5 years
While many traditional banks and private banks were extremely reluctant to even discuss potential terms for the above scenario, our Guernsey contact was able to deliver. The LTV of 50% offers a degree of security to the lender as well as the client. UK base rates plus 4.25% is a reflection of the challenging background but reflects well against current rental yields.
Even though there is some short-term concern regarding the UK property market in light of Brexit, many long-term investors are cherry picking property assets with attractive rental yields. This ensures long-term cash flow and the potential for long-term capital growth. It is also worth noting that the client still has £400,000 equity remaining in the central London flat.
What can Enness do for you?
Over the years we have dealt for many clients living and working overseas looking to acquire property in the UK and other parts of the world. While some of their financial backgrounds can be challenging, and often require thinking outside of the box, we are confident we can deliver. This particular case highlights our worldwide contacts, the flexible nature of some private banking operations and the quality of our partners. Even though the LTV was relatively low it was the fact that the client lived and worked outside of the UK which was challenging.
If you are in a similar situation and require assistance and advice regarding mortgage funding please feel free to contact us for a no obligation chat. We have numerous examples we can show you, an array of different structures to consider and are able to tailor mortgage funding around your individual situation. We know who to speak to, specialists in different fields and how they like client information presented. As a consequence, we can also give you examples of real-time market rates and how these may impact your fundraising capabilities and the level of payments/security required going forward.