Over the last decade we have seen a huge change in the UK mortgage market to accommodate the fact that more people are now working at least partially overseas and often have secondary incomes. Historically this has caused some problems, with multiple currency income streams forcing many mortgage companies to step away from offering finance. As we know, the UK mortgage market is extremely liquid and able to adapt and change to different trends.
When we were approached by a UK national who lives between the UK and the US we immediately recognised this would reduce the potential pool of mortgage lenders. The fact they also had two income streams, one from the UK and one from the US, added a further complication. In years gone by we would have been looking at a significant premium on the headline mortgage interest rate. So, how did we address these challenges?
Many multinational companies offer employees the opportunity to work in different parts of the world and experience different cultures. There has always been a relatively strong affinity between the UK and the US especially when it comes to business and multinational companies. So, scenarios with UK nationals splitting their lives between the UK and the US are becoming more commonplace. In this particular scenario the client had used a bridging loan to fund an initial UK property purchase but the rate was onerous and needed to be refinanced.
The basic client scenario was as follows:-
Client: UK national
Resident: Splitting time between UK and US
Income: Two income streams, one from the UK and one from the US
Property portfolio value: £550,000
Intended property use: Main UK residence
Initial funding: Property acquired using bridging finance
While the bridging finance interest charge of 7% was not expensive for bridging finance, this is only supposed to be a short-term solution. Therefore, it soon became apparent that the client would need to refinance the bridging loan using a traditional mortgage. As we touched on above, many mortgage providers will take a step back from UK nationals splitting their time between the UK and the US and having multiple income streams. Those headline mortgage lenders who would step forward would include a significant premium leading to an interest rate of between 3% and 4%. However, we have very strong contacts with traditional banks, private banks and niche lenders.
We will now take a look at how we injected competition into the fundraising process and negotiated some very favourable terms.
Issues to address
So, there were a number of issues to consider with this particular transaction. On one hand we knew that the client would be splitting their time between the UK and the US. There was also the fact that they had dual income streams, one from the UK and the US, which would obviously incorporate a degree of currency risk. Thankfully, there are now specialist mortgage providers who will take into account overseas income streams – although some will try to introduce a degree of discounting to offset any potential currency risk.
We were fully aware of the relatively expensive cost of the bridging finance compared to traditional mortgage rates, especially when bearing in mind current UK base rates. If we were to go down the traditional route of refinancing for this scenario, we could still improve on the 7% bridging finance rate but at still a relatively expensive rate of between 3% and 4%. What we needed was to find a mortgage provider who would accommodate this split living scenario as well as the dual income streams and potential currency risk.
In summary the issues to address were as follows:-
Property value: £550,000
Current funding: Bridging loan at 7% interest
LTV required: 75%
Income: Dual income from UK and US
Lifestyle: Time split between the UK and the US
Even though we knew there was a relatively simple refinancing solution which would reduce the rate from 7% down to between 3% and 4%, we wanted a more competitive rate. It was now time to look at the various options, approach our contacts and try to reduce this potential rate even further.
As an independent mortgage broker we have access to more than 300 lenders across the globe taking in different currencies and different criteria. These include traditional banks, private banks and niche lenders which often have very different criteria and ways of viewing the same scenario. The fact that we are not tied down to one particular party, or group of parties, means that not only can we investigate alternative funding structures but we can also introduce a degree of competition into the negotiating process.
In basic terms, we needed to find mortgage providers who were unfazed by the client’s split living arrangement as well as the dual income streams. This involved approaching a number of specialist lenders as we were aware that traditional lenders would at best introduce a significant premium to the headline interest rate. Thankfully, we were able to negotiate extremely competitive terms with a mortgage lender willing to offer standard UK pricing on this non-standard scenario. This resulted in a huge saving on interest payments and brought the property finance into a more traditional realm.
The exact details of the funding solution were as follows:-
Funding partner: Private bank
Property value: £550,000
Mortgage funding: £412,500
LTV ratio: 75%
Mortgage rate: 1.34% fixed for two years
Previous bridging finance rate: 7%
Mortgage duration: 30 years
This was obviously a non-standard scenario and one in which we had to research potential lenders who would treat UK/US income as one, as well as accommodating those looking to split their time between the two countries. It is no surprise that the client was extremely pleased that we were able to negotiate a rate of 1.34% fixed for the next two years. As UK base rates are unlikely to rise in the short to medium term, there may also be potential to negotiate a further fixed-rate period further down the line, but that would obviously depend upon market movements. This case study perfectly illustrates the need to build relationships with traditional banks, private banks and niche lenders which allows us to cover all bases with client funding requests. The injection of a degree of competition is also extremely important because this ensures that we are able to negotiate the best rates possible.
What can Enness do for you?
Over the last few years we have seen an increase in funding requests incorporating split living arrangements and dual incomes. Historically, as we mentioned above, this was not something that the traditional mortgage market was willing to accommodate without a significant interest rate premium. Thankfully, the introduction of private banks and niche lenders has added another string to the bow of mortgage brokers. We have yet to come across a funding scenario where we have not been able to inject a degree of competition into the negotiations. Our independent status is invaluable to us in these particular scenarios where there are no limitations or restrictions on the number/type of finance parties we can talk to.
If this case study reflects your current or future funding challenges, we would welcome the opportunity to discuss your requirements in more detail. There is always a degree of flexibility across private banks and niche lenders as well as the ability to incorporate additional income streams and collateral. Whether looking for a traditional funding arrangement or a bespoke structure, we can provide you with a number of alternative solutions. These will be based on real-time market rates therefore giving you the opportunity to compare and contrast cash flow and financial liabilities in the short, medium and longer term. It is then simply a case of choosing the best structure for your situation, making any adjustments and signing on the dotted line.