Dual nationality, second charge on UK asset and business loan

THE SCENARIO

While dual nationality can be a problem with some lenders, we have dealt for in excess of 80 different nationalities during the last 18 months. This is an area in which we are very comfortable, have very strong contacts and have been able to put together some relatively complicated bespoke arrangements. So, when we were approached by an offshore tax resident, with dual nationality, looking for a bridging loan to fund a business investment, we were confident in our ability to secure the required funding.

Client scenario

In this particular case study we have a client looking to use a second charge against their UK main residence in order to raise funds for business purposes, a bridging loan lasting 18 months. The residence in question can best describe as a multi-million pound “unusual asset”. As it already had a first charge with a private bank this would not be a run-of-the-mill transaction.

Nationality: Dual nationality
Tax situation: Offshore tax resident
Income: Predominantly offshore
Type of funding: Bridging loan
Use of funds: Investment in business
Timeframe: 18 months

The use of a second charge on an asset which is already part of existing funding may look complicated on the surface but it is fairly common. In effect any additional funding secured on a second charge will be as a percentage of the equity within the asset, i.e. the percentage of the asset which has been paid off and is owned outright. In this instance there was more than enough additional equity to accommodate a second charge on the fundraising.

Issues to address

At first glance there are many different issues to consider with regards to this particular case study. Dual nationality and offshore tax residency status, together with the mix of income and assets, meant that nearly all the lenders we would normal approach were ruled out. The multi-million pound asset was described as “unusual” and offered additional challenges compared to traditional property. Despite the obvious issues to address we looked at each element in isolation and then began to create a structure which would accommodate them all.

In summary the challenges were as follows:-

Nationality: Dual nationality
Tax: Offshore tax resident
Income: Predominately overseas
Security: Described as a multi-million pound “unusual” asset i.e. non-standard
Asset charge: Second charge behind private bank debt
Exit strategy: Liquidation of client’s investment portfolio

The fact that the funds raised would be used for business purposes is fairly wide ranging but details would be made available to the lender. As a consequence, while there may well be sufficient income/security to cover the loan in its entirety, the reason for raising the funds would also be discussed. As we touched on above, the vast majority of lenders declined to even open negotiations which meant that those who could accommodate this scenario would need a degree of man management.

The only way to secure the most competitive deal for our clients is to ensure that those offering funding are able to go head-to-head and realise there is competition. The fact that we are an independent mortgage broker means that we have access to more than 300 lending parties with no restrictions. As we specialise in bespoke arrangements we have come across similar situations on numerous occasions so we knew where to direct our focus and resources.

The solution

The client was delighted when we were able to secure funding on very competitive terms. The bullet points of the solution were as follows:-

Security: Second charge on UK main residence
Gross LTV: 70%
Repayment: Interest fully retained
Term: 18 months
Exit: Sale of investment shares

In summary, there was a clear reason for raising the funds, there was a credible second charge available and perhaps more importantly an exit route. The 70% gross LTV, together with the security provided by the client’s share portfolio, offered sufficient headroom so that the deal could proceed.

What can Enness do for you?

In many ways our independent status came in very useful in this particular case study. The pool of lenders to choose from with this unusual scenario was always going to be relatively small. The fact that we could negotiate with all interested parties, without any restrictions, ensured we were still able to inject a degree of competition. We know that dual nationality and offshore status for tax can cause problems, second charges for bridging loans are more commonplace but against “unusual asset” this can put some lenders on the back foot. However, we had a clear reason for the fundraising and an exit route with more than enough security to put the lender’s mind at rest.

If you find yourself in a similar situation we would welcome the opportunity to discuss your circumstances in more detail. It is essential to undertake a “know your client” review as early as possible because knowledge of their wider financial situation can open up additional options. As we have access to real-time rates we can prepare a range of bespoke structures so you can compare and contrast terms, conditions and cash flow. Leaving you to choose the one which you believe best suits your situation.

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