Over the years we have received a large number of enquiries from the financial sector, those currently in employment as well as ex-bankers. Many are looking at ways to maximise their income and stock options, some of which can be deferred after leaving employment, in order to remortgage property on better terms. We tend to come across individuals who are asset rich but may have limited short term income flows.
So, when we were approached by an ex-banker, with an extremely high profile, looking to secure circa £1 million to remortgage an existing loan, we knew which lenders to approach.
This particular client was an ex-banker with an extremely high profile having been head of one of the largest financial desks for an international bank. As UK base rates have softened of late, we have seen a reduction in mortgage rates. The client’s initial fixed rate mortgage term was coming to an end and they were about to be switched to a standard variable rate with their existing lender. This would have seen a significant increase in mortgage interest payments and a less than competitive rate in the current environment – all while the client was not working.
The basic client scenario was as follows:-
Client: Ex-banker with an excellent profile
Income: High net worth individual with access to deferred income (cash and stocks)
Property value: £3 million
Property ownership: Main residence
Existing loan: £900,000
Mortgage interest rate: About to revert to lenders standard variable rate
LTV required: Circa 30%
Mortgage type: Interest only
Even though the client was extremely wealthy with significant assets they had recently left employment and were not working at the time of the refinancing. Normally this would have meant failing the traditional mortgage affordability test but they were receiving an income of a deferred nature (in cash and stocks). This arrangement is common amongst high profile employees who leave employment after which they have access to deferred income in the form of cash and stocks.
At this point it is worth noting that not all mortgage providers will recognise this type of income when looking towards mortgage funding.
Issues to address
As we touched on above, the main issue with this particular case study revolved round the client’s current employment position. They were not working at the time of the refinancing so there was no traditional form of income. They were however able to access deferred income in the shape of cash and stocks which we would need to use when looking at mortgage affordability testing. In essence, this was a relatively unique scenario and one which required a niche lender and a bespoke structure.
In summary the issues to address were as follows:-
Income: Limited to deferred cash/stock upon leaving employment
Refinancing: £900,000 like-for-like remortgage
Interest rate: Fixed term ending and imminent switch to standard variable rate
Mortgage LTV ratio: Circa 30%
Everything hinged around the fact that at the time of the refinancing the client was not in employment. They had a track record and excellent profile amongst the banking community having headed one of the largest financial desks. We were able to use the reputation of the client together with deferred cash/stock income to leverage their position in the mortgage market.
As an independent mortgage broker we have access to more than 300 UK and international lenders. This mix of lenders includes an array of niche players who specialise in fairly unique and bespoke situations. While the use of deferred income in the shape of cash/stock is more commonplace today amongst high profile executives, not all mortgage companies will recognise this form of income when looking at mortgage affordability.
There were a number of issues here which included the source of income together with the fact the client’s existing mortgage was about to switch from a fixed rate to the much higher standard variable rate. Time was of the essence and we needed to find a niche mortgage provider who would fully appreciate deferred income streams and was prepared to act quickly!
After contacting appropriate lenders we were able to secure funding on very competitive terms with a relatively small building society.
Funding partner: Small building society
Property value: £3 million
Mortgage funding: £900,000
LTV ratio: 30%
Mortgage duration: 10 years
Mortgage type: Interest only
Mortgage rate: 2.20%
By approaching lenders we knew operated in this particular niche field we were able to instigate a degree of competition and negotiate an extremely competitive rate. We know that many of the smaller building societies are comfortable operating in niche lending areas such as deferred income. It was also important that the lender was able to turn around the application extremely quickly to avoid a switch to the more expensive standard variable rate.
As a consequence of our contacts in the marketplace, the client was able to continue making minimum payments towards their mortgage despite the fact they were not at that stage in employment. While it is fair to say that the client’s reputation, source of deferred income and experience helped secure funding, this would have been much harder without our independent status.
What can Enness do for you?
As an international mortgage broker we are often approached by clients and advisers looking to refinance and restructure existing mortgages. While use of deferred income is not necessarily commonplace as yet, it is certainly much more widely used today than in the past. In many ways this type of income is a win-win for all parties. The employer is able to offer long-term incentives to retain exceptional employees. As in this situation, employees have access to a deferred income stream upon leaving employment.
If you find yourself in a similar situation to the client in this case study we would welcome the opportunity to chat with you. A no obligation discussion regarding your specific scenario would allow us to offer suggestions and advice going forward. As we have access to more than 300 worldwide lenders we are able to secure extremely competitive quotes for clients. This allows us to put together a number of options using real-time rates which allow you to compare and contrast not only short-term cash flow but also short, medium and long-term liabilities. Sculpturing a funding arrangement around your specific scenario can be challenging but ultimately extremely rewarding.