There is no doubt that London is still one of the major business centres of the world and continues to attract huge real estate investment. As a consequence, we are regularly contacted by non-residents looking to acquire property in London for use when they are in the country. There are obvious drawbacks when negotiating mortgage finance for those looking to spend only part of their time in the UK. We also find that many international investors have relatively complex income streams often in foreign currencies.
We were recently approached by an Italian national who was non-domiciled and non-resident but spending a significant amount of time on business in the UK. The client was looking to secure mortgage funding with a relatively high LTV for a London property. While traditionally this would tend to be the realm of private banks and niche lenders, we also deal with many traditional mortgage lenders who can be flexible in certain situations. So, there was much to do but how did we managed to secure maximum funding at an extremely competitive rate?
The key to unravelling potentially complex funding scenarios is to break down each element and create a bespoke arrangement akin to putting together pieces of a jigsaw. We knew that this would be relatively challenging as the client was non-domiciled and non-resident, looking to use the property sporadically which would be funded by foreign currency income. Upon further investigation it was revealed that the client had a relatively complex income arrangement which would require some form of reference for clarity.
So, the basic scenario was as follows:-
Client: Italian national
UK status: Non-domicile, non-resident
Property value: £2.8 million
Proposed LTV ratio: 70%
Income: Complex set-up in foreign currency
Employment: Employee and shareholder in a global finance business
Property use: Regular (when working in the UK)
It is fair to say that the greater the number of potential issues placed in front of a traditional mortgage lender the more they will look to add a premium to standard UK mortgage pricing. Our role is to nurture relationships with specialist/niche mortgage lenders who are able to appreciate the aspects of global employment, non-domicile and non-resident status. We also need to ensure there is a degree of competition when looking to arrange funding to secure the best terms possible. Even though this was a fairly complex scenario it was essential to strip the fundamentals back down to basics when approaching mortgage lenders.
We will now list the various issues with this particular client and how we were able to begin negotiations with mortgage lenders.
Issues to address
As we touched on above, there were a number of issues to address with this particular scenario. The client was non-domicile, non-resident and only looking to use the UK property when in London on business. Granted, the individual was in London regularly on business this is still an issue which many mortgage lenders are uncomfortable with. While the client had a substantial shareholding in a global financial business, overall, their income situation was relatively complex and denominated in euros. The complexity and the foreign currency would again reduce the number of potential lenders we could negotiate with – presenting a challenge to keep eventual funding terms competitive.
When looking at the overall situation we knew it would not be straight forward but it was certainly possible to put together a competitive proposal. The required LTV ratio at 70% was certainly stretching the norm even for specialist mortgage providers – but there were options available. Upon further investigation it became apparent that we would need to focus on the client’s company income as opposed to the overall more complex scenario. So, with the scene set it was now time to mobilise our array of contacts to secure the funds.
In summary the issues to address were as follows:-
UK Status: Non-domiciled and non-resident – visiting UK on business
Required LTV ratio: 70% (stretching the ceiling for this scenario)
Employment status: Salary with substantial shareholding in a global financial business
Income: Complex arrangement in a foreign currency
Property use: Regular – when in UK on business
The norm for relatively complex scenarios such as the above tends to push us towards private banks and niche lenders. Traditional banks are often risk averse but we do know of a number of building societies who are prepared to be flexible with their criteria.
As an independent mortgage broker we have access to more than 300 lenders across the global financial markets. We deal with traditional banks, private banks and niche lenders allowing us to cover the vast majority of funding requirements placed in front of us. Part of the key towards securing competitive rates for mortgage financing is to know who to approach, how to approach them and presenting the client’s financial resources in the best light. As we are not tied to any one party, or group of parties, we literally have access to the whole market.
In this case study we decided to simplify the scenario as much as possible because there were a number of potential complications. Rather than looking at the client’s numerous income streams, which would be difficult to clarify with any great certainty, we focused purely on the client’s salary from the company. This allowed us to present underwriters with a relatively simple proposal especially as the income figures were supported by an accountant’s reference. No need to delve into the tax regulations of Italian companies and the cost and time this would entail.
As we touched on above, we were able to agree funding not with a private bank or niche lender but with a flexible building society based in the UK. They were able to use the referenced income figures which allowed us to secure finance on a relatively high LTV ratio.
The exact details of the funding solution were as follows:-
Funding partner: Building society
Property value: £2.8 million
Mortgage funding: £1.96 million
LTV ratio: 70%
Mortgage rate: 2.99%, three-year discounted variable rate
Mortgage duration: 16 years
In many ways this case study perfectly reflects the global mortgage markets in which we operate and the fact that many mortgage providers are more flexible these days. We appreciated it may be difficult to clarify the client’s overall income streams so we focused on the most basic, and largest income stream, his company salary. Some mortgage lenders are also uncomfortable funding property purchases which will not be the individual’s permanent residency – but this was not really an issue in this case. The rate was competitive, LTV ratio towards the top end and more importantly we were able to work with a tax adviser to structure the property purchase in the most efficient manner possible.
What can Enness do for you?
There is no doubt that non-domiciled and non-resident clients are becoming the norm and reflect the enlarged global business market. Thankfully, the worldwide mortgage market has developed at a fast pace over the last decade or so with mortgage providers more flexible than ever before. This particular case study was challenging in so many different ways, the client’s residency status, tax status, required LTV ratio and complex income streams. While many might automatically assume this would require the services of a private bank or niche lender, we work with many building societies that can be extremely flexible with their mortgage criteria. Again, this illustrates the value of building close and long-term relationships with many different mortgage providers, possible only because of our independent status.
If you find yourself in a similar scenario to this particular client we would welcome the opportunity to discuss your funding requirements in more detail. We are regularly approached with funding requirements rejected by competitors often unable or unwilling to “think outside of the box”. Due to our deep-seated knowledge of the mortgage market we are able to create both traditional and bespoke funding structures, which perfectly dovetail with the client’s requirements and resources. We will provide you with a number of solutions to your funding requirements. These will incorporate real-time market rates so that you can compare and contrast cash flow as well as financial liabilities in the short, medium and longer term. While looking to maximise funding available we are also conscious not to overstretch a client’s financial resources.