It is no secret that the London buy to let property market has been affected by stringent rental calculations. The traditional mortgage market has a preference for buy to let pricing as opposed to residential pricing when considering rental income. As a consequence, this has significantly reduced the opportunities for multi-million pound refinancing. So, when we were approached by a non-UK resident with a buy to let portfolio of three properties in London, looking for a refinancing at reduced pricing margin, we began to consider the options.
On paper the required refinancing seemed fairly straightforward with an LTV of 62% and rental income as a consistent source of finance. However, due to the way in which banks calculate rental income it was soon very clear this would be a challenge. The details were as follows:-
Property portfolio value: £8.1 million
Property refinancing: £5.35 million
Mortgage term: 10 year facility
Target: Like-for-like refinancing at reduced price margin
Current mortgage rate: 3.92%
We were given specific instructions to beat the current mortgage rate and refinance the elements of the buy to let portfolio coming towards the end of their mortgage term. In theory, with UK base rates near record lows there was scope to improve on the current mortgage rate. However, the issue was further complicated by the fact the client was a non-UK resident.
Issues to Address
While there are three properties to consider with this refinancing, and the relevant paperwork, as a collective this is not really an issue. The main problem is tackling the issue of the buy to let pricing model and attempting to move any mortgage provider towards a residential model. This will increase the maximum loan amount, offer scope to reduce the headline interest rate and maximise the client’s rental income, their one source of income. So, in reality the issues we needed to address included:-
Income: Maximising rental income to maximise mortgage funding
Mortgage type: 10 year facility
Mortgage interest rate: Improve on current rate of 3.92%
LTV requirement: 62%
So, we have a client who depends on rental income to fund mortgage repayments, a property portfolio worth £8.1 million with a need to refinance £5.35 million immediately. The vast majority of traditional banks tend not to appreciate the full rental income when calculating affordability. It therefore became obvious at a fairly early stage that the private banking sector would be able to offer the most appropriate arrangement.
Despite the fact recent years had reduced net income from the client’s buy to let portfolio we were able to focus on the client’s long-term proven track record. This also involved tough negotiating by us as well as the production of a credit report to back-up the client’s skills in managing a buy to let portfolio. The wider appreciation of the client’s long-term track record in buy to let investments would not necessarily have been possible in the traditional banking sector. Again, this perfectly illustrates the fact that private banks are willing to offer bespoke arrangements whether refinancing or looking to arrange a new mortgage. So, after much negotiation who were able to secure the following funding:-
Mortgage: £5.35 million
Mortgage type: Interest only
Mortgage term: 10 year facility
LTV rate: 62%
Fixed rate: 2.39%
Fixed rate term: 5 years
As you can see from the above, we significantly reduced the headline interest rate from 3.92% down to 2.39% fixed for a five-year period. We were also able to negotiate a better fee structure which again reduced the client’s historic costs. Perhaps more importantly, we persuaded the mortgage lender to use the residential pricing structure in order to maximise funding available. As a consequence, the client was persuaded to move away from their existing bank of many years to a new private bank. This also has the potential to open up an array of other services such as asset management as well as future mortgage/refinancing requirements.
What Can Enness Do for You?
The best way to address what was a fairly complicated scenario was to break down the detail into different elements. This meant we had to find a private bank willing to accommodate non-UK residents, switch from buy to let pricing to residential pricing of rental income and also look to beat the client’s previous mortgage rate of 3.92%. When negotiating the refinancing we were also able to secure a reduction in fees offering further savings to the customer.
If you are in a similar situation, you may even have been turned down by other mortgage brokers, we would welcome the opportunity for a no-obligation chat. We can discuss your particular situation, funding requirements and compare and contrast the deals available in the market today. Bespoke mortgage arrangements not only maximise a client’s financial clout but also offer an enhanced degree of security for mortgage lenders. A win-win situation…….