We are often approached by third parties who are asset rich and looking to enhance their personal cash flow. In this particular situation we were approached by a UK national who was living in Monaco and looking to raise additional finance against his Monaco apartment. On the surface this was a fairly straightforward refinancing but further discussions revealed a complex financial scenario.
The basics of the client’s financial scenario were fairly straightforward:
Property: Apartment in Monaco
Property value: €1.85 million
Existing mortgage: €400,000
Property equity: €1.45 million
Additional funds required: €200,000
As the client had €1.45 million in equity there was more than enough scope to raise an additional €200,000 for their personal needs. However, there were a number of other issues to take into consideration which made the transaction more complex and more challenging.
Issues to address
Traditional mortgage lenders will still require regular income to support mortgage payments and pass the affordability test. In this scenario there were further issues which we needed to take into consideration when looking for an appropriate lender and negotiating the best deal:
Cash reserves: Negligible – short-term cash flow issues
Assets: Apartment in Monaco
Future income: Proceeds from ongoing sale of personal company
So, we had a client who was asset rich but had negligible short-term cash reserves. It immediately became obvious that traditional mortgage refinancing options were unsuitable. We therefore looked towards the private banking sector and in this instance approached a Monaco lender with whom we have a long-term relationship. However, part of any mortgage refinancing arrangement would require the transfer of investments/cash to the Monaco lender’s asset management division.
AUM (assets under management) arrangements are a common requirement of many private bank mortgage agreements. In effect the borrower will transfer a predetermined amount of cash/investments to the lenders AUM division. While the client will still benefit from income and capital growth, this acts as an insurance policy for the lender against the mortgage finance. So, as the client had minimal cash and no investments available to transfer we had to come up with a creative solution.
In the background there was the prospect of a significant settlement when the sale of the client’s personal company was completed. At the time it was unclear when this would be but terms and conditions had been agreed and it was only a matter of time. As a consequence the client was unable to utilise the forthcoming sale proceeds until they were received. While the Monaco lender had agreed a mortgage in principle they required the transfer of assets/cash to their AUM division. We managed to secure a creative bespoke agreement which maximised the client’s current assets/income while also providing security to the lender. The solution was as follows:
Remortgage: €1.4 million
Type of mortgage: Interest only
Mortgage interest rate: 1.5% variable
Repayment of existing mortgage: €400,000
Additional funds for client: €200,000
Funds available for AUM arrangement: €800,000
This innovative bespoke arrangement had many benefits for all parties. The client was able to raise the additional €200,000 required, repay their existing mortgage with relatively cheap finance and the income/capital gains from the AUM arrangement would likely cover annual mortgage interest charges. As and when the proceeds from the sale of the client’s company were available these could be used to pay down the mortgage capital, be retained on deposit or invested elsewhere. The LTV ratio of 76% was extremely high and only available because of the effectively self-financing AUM transfer.
What can Enness do for you?
As an independent mortgage broker there are no restrictions as to the type and number of lenders we can talk to. These lenders take in traditional banks, private banks and niche lenders allowing us to negotiate a deal for any scenario. This particular case study perfectly reflects our ability to “think outside the box” and look for innovation while also securing attractive interest rates. If you are looking to partially or fully refinance your existing mortgage and raise additional funds then please call us for a no obligation chat. We can talk you through the options, the most appropriate structure for your situation as well as the current market rates.