We tend to find that the devil is in the detail when it comes to refinancing, especially where families live overseas but retain a UK property. In this particular case study, we were approached by a husband-and-wife currently residing in Dubai although the lady and children were looking to move back to the UK relatively soon. This has been a very common trend over the last decade or so, UK companies looking to branch out into areas where there are high net worth individuals. So, on the surface this seemed fairly straightforward, the refinancing of an existing property in the UK to acquire a new family home.
One of the conditions of this particular fundraising was that it needed to happen very quickly and the LTV would need to be circa 70%. Even with high net worth individuals, a 70% LTV will often come with various conditions such as assets under management arrangements. This allows private banks/niche lenders to cultivate long-term expansive relationships with their customers going forward. The ability to offer different services to new clients can often lead to extremely competitive funding rates with the idea of selling additional services further down the line.
There is a common misconception that the criteria for refinancing a £1 million property are any different to refinancing a £10 million property. At the end of the day it all comes down to the criteria, numbers, income and security. In this particular scenario the clients already had property in London valued at £1 million. There was a significant degree of equity in the property which left enough to refinance and acquire a new family home in Cheltenham. The only real issue was the relatively high LTV and the fact that the client wanted to move swiftly.
We are finding that more and more clients are looking to refinance their properties with UK base rates near their historic lows. While there has been speculation that rates could fall further in the short to medium term, as a consequence of Brexit negotiations, nothing is set in stone. Therefore the reality is that the only interest rate you can guarantee is the one that you see before you today. So, how did we approach the refinancing of an existing property in order to fund the purchase of a new family home?
The basic scenario was as follows:-
Clients: Dubai residence
Income: Circa £260,000 per annum
Additional allowances: Circa AED 450,000
Employment: Legal profession (Dubai arm of UK based company)
Existing property: London
Property value: £1 million
LTV ratio: 70%
Additional condition: Fast completion
A traditional mortgage refinancing can take many weeks if complicated and especially where the clients are based overseas. As an independent mortgage broker we have access to more than 300 lenders across the globe. This means that we have built up very close relationships with an array of traditional banks, private banks and niche lenders over the years. We know who to go to for specific scenarios, we know the information they require and they trust us to put together the correct paperwork for a relatively quick completion.
While the refinancing itself was fairly straightforward, even though the clients lived in Dubai, it was the relatively high LTV and the urgent nature which would be the main hurdles. There was also the issue of assets under management, with many private banks/niche lenders looking for both additional security and the opportunity to expand their relationship going forward. As a side note, the fact that the family held British passports was certainly a positive when it came to refinancing negotiations.
Issues to address
In normal circumstances, where a family has resided overseas for some time, there can be issues but this case was fairly straightforward. The main income earner was employed by a UK-based company, at partner level, and the family held British passports which was certainly helpful. As we touched on above, the main issue came down to the LTV and the fact that the client had requested urgent completion in order to secure the purchase of a new family home.
The 70% LTV ratio would mean raising funds of £700,000 against the original London property. This property would be retained and an additional family home purchased outside of London with a value of around £495,000. The 70% LTV ratio was required in order to refinance the existing mortgage and fund the new purchase. So, in reality there was little leeway with regards to the LTV ratio and we would need to approach numerous lenders to achieve a competitive headline mortgage interest rate.
In summary the issues to address were fairly simple:-
Required LTV ratio: 70%
Additional property purchase: £495,000
The LTV ratio of 70% would allow the lender to maintain 30% headroom between the total mortgage and the property value. In theory this would cover the lender in the event of any fall in the value of London property and a default by the client. In reality the client earned over £260,000 per annum with a huge allowance and was therefore extremely liquid.
Even though the LTV ratio of 70% reduced the potential pool of lenders we were still able to negotiate very competitive terms. A mixture of the client’s annual income and the comfortable degree of headroom between the mortgage value and property value removed the need for an AUM arrangement (assets under management). While negotiating the refinancing there was a need to ensure that removing the option of an AUM would not impact the competitive headline mortgage interest rate. This is where our long-term relationships with various lenders prove extremely useful as we funnel a constant stream of high value mortgage refinancing applications through the marketplace.
The exact details of the funding solution were as follows:-
Existing property value: £1 million
Refinancing required: £700,000
LTV ratio: 70%
Mortgage interest rate: 3.29%
Fixed term: Five years
Outstanding mortgage repayment: Circa £200,000
Purchase of additional property: £495,000
AUM arrangement: Not required
In some cases when clients work overseas but retain the UK residency there can be issues with regards to taxation, security of income and overall financial strength. In this particular situation the clients already had a UK property, the family held British passports and had sufficient equity in the initial property to refinance and purchase the new family home. Even though the LTV was towards the upper end of the traditional range there was still sufficient security/headroom available.
The case study ended up being relatively straight forward once we had put aside what initially seemed like possible hurdles, but weren’t, such as the fact the family were currently living in Dubai. The main challenge was securing the relatively high LTV while avoiding an AUM which would have tied up additional investments/capital. There was also the need to close the refinancing relatively quickly so the client was able to secure the purchase of the new family home.
What can Enness do for you?
We are regularly approached by potential clients who are based overseas for employment reasons, while still retaining their British passports and UK residency. It is fair to say that Dubai has been and continues to be a relatively strong magnet for many UK companies and as a consequence their employees. There also tends to be a relatively strong trend in later life, those looking to return back to the UK and acquire additional properties as they ready themselves for a future back “home”. There are obviously differing criteria used by mortgage lenders but we have extremely close relationships with an array of traditional banks, private banks and niche lenders. We know their specialist areas, the information they require and the best format in which to present the client in the best light.
If your situation is similar to the above case study then we would welcome the opportunity to discuss your requirements in more detail. There is no one size fits all solution therefore our skills as a bespoke mortgage broker come into play. Yes, we can arrange traditional relatively straightforward mortgages/refinancing but we specialise in high value bespoke arrangements. Using real-time market rates we can present you with an array of different solutions allowing you to compare and contrast both cash flow and short, medium and long-term financial liabilities. We are able to shape the funding structure around your specific scenario and while maximising your income we are always conscious not to overstretch your finances.