Sometimes a deal can make perfect commercial sense but something seemingly insignificant makes it fall outside a lender’s criteria and the whole thing collapses.
Worse, this can often happen at the last minute when the details are being checked and the borrower is left in the lurch. Brokers know that this is where they earn their stripes – finding a solution when clients are most in need is the reason most brokers are in business.
Vantage was recently referred just such a case: not only was it a purchase of four flats in a block, the purchase was through a limited company and the properties had both a tenancy and sub-lease agreed for two years.
To complicate matters further, the company’s directors had no previous experience of buy-to-let – on paper making them a first-time landlord.
The introducing broker had taken their client 90% of the way down the line with one of the high-street lenders but at the last minute, just weeks before completion was due, the deal had been declined due to the complexity of the tenancy agreements in place.
Lucy Hodge, director of Vantage Finance, said: “This is a really good example of when specialist advisers can work with brokers to help them get a deal over the line.
We took the time to look at the case in detail – the four directors of the company might not have been landlords before but they each earned £60,000 a year through property development.
The tenancy agreement in place was with an estate agent for two years – guaranteeing rental income – and they’d agreed a two-year sub-let with the local authority to lease the properties to emergency tenants who weren’t classed as vulnerable.
This was the thing that put off the big lender but at Vantage, because we do deals like this day in, day out, when we put the deal to one of our panel of specialist lenders they trust us to present the nuances of a case. They know we are going to give them commercially sound opportunities.
As a result, the clients made their completion date and the lender agreed to lend, despite them usually insisting on buy-to-let borrowers having landlord experience.”
Loan amount: £812,052
Rate: 3.90% above Libor, over five years, 1.5% lender fee plus 1% broker fee
Overall LTV: 73.96%
Expats paid in currencies that are not sterling face enough hurdles as it is following the introduction of tighter regulation under the Mortgage Market Review. Those paid outside of the UK, no matter the currency, face even more hurdles when they want to bring capital into the country.
Anti-money laundering rules often require reams of paper-trails and money to have been in the UK for a minimum period of three or sometimes six months.
All this is understandable – it’s important that advisers don’t unwittingly serve to aid and abet criminal activity, laundering ill-gotten gains through the legitimate purchase of UK property.
However, for legitimately gotten gains, purchasing property legitimately can prove not just maddeningly difficult, it can feel impossible.
Vantage Finance was approached by a broker earlier this year, who actually specialised in expat mortgages himself. The client is paid in Hong Kong but owns a semi-commercial property with his uncle in the UK.
He wanted to raise enough finance on a commercial loan to pay his uncle out of the existing property as well as additional funds to finance further commercial investment in a property he had yet to identify.
Lucy Hodge, director of Vantage Finance, said: ‘This would have been a straightforward deal had it not combined both challenges of income coming from outside the UK and the fact that the additional capital raise was intended to fund the purchase of an unknown property.
The problem for many lenders is being unable to assess the security of the additional purchase.
‘But this is not insurmountable – there was enough equity in the existing property to satisfy the lender that the capital raise would be a good risk regardless of the security on the new purchase meaning the client didn’t have to disclose details of that purchase when he didn’t yet know them.”
Loan amount: £528,830
Overall LTV: 62.20%
The Mortgage Credit Directive brought with it several changes for mortgage advisers: second charges came under the supervision of the Financial Conduct Authority, the ESIS was enforced and foreign currency mortgages suddenly all but disappeared.
But just because the regulation put a lid on the number of products available to borrowers paid in foreign currencies, doesn’t mean the volume of demand also dropped.
Brokers will know that the type of borrower paid in foreign currency is also more likely to be wealthy and have a complex income structure aside from the denomination of their salary or bonus.
Vantage Finance recently completed a case where a self-employed borrower wanted to borrow £150,000 to pay for a new extension on his home. The deal was fully regulated, reducing his funding options but to make matters more complicated he also received his salary in US dollars into a UK bank account.
Following MCD, his options were even more minimal. Vantage however agreed a second charge loan with a lender which agreed to the terms under its high net worth waiver. The product offered was a two year second charge loan with retained monthly repayments. This helped the client further as it meant they had no extra monthly outgoings and could then look to remortgage their 1st and 2nd charge in 2 years’ time. This would tie in with the expiry of their current fixed rate with Santander ending.
Lucy Hodge, managing director of Vantage Finance, said: “This type of deal used to be relatively straightforward but unintended consequences of mortgage regulation have put borrowers at an unfair disadvantage.
These borrowers are typically pretty financially astute as well so it can be doubly frustrating for them to be turned down and find their broker can’t place the deal. Having a specialist partner to broke the deal with a more specialist panel of lenders can be a saving grace in this situation.”
Loan amount: £150,000
Term: 24 months with no monthly repayments
Bridging loans have been conversely vilified and celebrated over the past ten years. Our attitude is that done right, by a responsible lender in a situation appropriate to the client’s need, it’s a very useful product to have in your arsenal as a broker.
A situation that is seen all the time where bridging loans really come into their own is where the borrower needs the money fast. This is often the case in property development – even where the developer is not building from the ground up but is refurbishing an existing property for resale or to let.
We recently completed just such a deal for a developer who found himself in what could have turned into a very expensive predicament.
Having taken out a short-term loan with one lender to develop six properties, the works had taken longer than initially expected and the term of the loan he’d agreed was about to run out – in a fortnight.
Worse, the bridging lender he had originally borrowed from were planning to charge him huge penalty fees that would likely wipe out his profit given that he estimated he needed the loan for another three months minimum.
To extend his existing loan wasn’t an option either – the lender wanted to charge him extension fees on top of the penalty fees. But on terms similar to the original loan, the commercials stacked up, the exit was evidenced and profits would be made.
Lucy Hodge, director at Vantage Finance, said: ‘This is a very typical situation for developers – it’s notoriously tricky to be precise at the outset of a building or refurb project exactly how long it will take. Developments have a habit of throwing curveballs into the mix but that shouldn’t mean the whole thing falls through. We were able to refinance the loan with another lender who could see the value in the deal within the two weeks he needed so he didn’t have to pay any of the additional fees.”
Loan amount: £1,006,520
Rate: 0.95% a month
Overall LTV: 50%
Since the eve of the Mortgage Credit Directive and the introduction of consumer buy-to-let brokers have been left with a lingering anxiety on what to do with first-time landlords.
Lenders haven’t made it easier, with each and every one having a different understanding and definition for the term.
The official rules define consumer buy-to-let as ‘any buy-to-let contract in which the borrower has not entered ‘wholly or predominantly’ for business purposes’.
But there are disagreements about what this means. That’s why specialists, who deal with this sort of case all the time rather than once every couple of months, are well placed to match borrowers who might be looking for their first buy-to-let mortgage but who know they don’t fall into the consumer restrictions with the most suitable lender.
Vantage Finance recently achieved success for just such a case – a couple who were hoping to invest some of their capital into a buy-to-let property in Scotland as part of their investment portfolio.
Lucy Hodge, director of Vantage Finance, said: “We meet clients face-to-face in this type of situation and it was clear from the outset that this couple were making an investment decision. They didn’t fall into the accidental landlord category at all.
They had got in touch with a developer and were looking to purchase a property in Glasgow, they were both on good incomes and wanted to borrow £81,000.
‘Not only did we succeed in finding them a five year fixed rate at 4.09 per cent, the loan was completed within 23 working days from start to finish.”
Loan amount: £81,000
Overall LTV: 73.64%
There has been a lot of talk about the so-called ‘professionalisation’ of Buy-to-Let since the former Chancellor George Osborne confirmed a stamp duty hike for landlords, tapering of tax relief and the removal of the wear and tear relief.
Much speculation has been made around putting a portfolio of properties into a limited company to benefit from lower tax rates. This is something we are seeing more of at Vantage
Earlier this year Vantage Finance received a referral from a bank to help one such landlord. His firm was looking to purchase 28 properties from the partners’ personal name to incorporate into a professional partnership. The properties were predominantly in the south east and east of London, requiring a total loan just shy of £8 million.
His need didn’t stop there. He already had another 28 properties and, in a bid to regroup his portfolio, was looking either to do a product switch or capital raise in various ways across these properties with the total finance required on these hitting £9.12 million. (14 product switches totaling £5.28m and 14 regroup/refinances totaling £3.83m)
To add to the pressure, he imposed a timeframe of three months on Vantage, Vantage spent days working through different scenarios to put to the client to form part of its recommendation. The amount of paperwork required given the loans were arranged through multiple facilities required a member of the Vantage team to apply such focus to the transaction daily to ensure it went through as efficiently as possible.
Lucy Hodge, director of Vantage Finance, said: “Deals at £17 million don’t come along that often and when they do, they’re usually not straightforward. Securing the finance for this client was no different – we assessed his entire portfolio and finance needs and spoke to a lender we knew would have an appetite to fund the deal.
‘This is where understanding the client’s ultimate needs and the lenders’ various appetites for risk is invaluable and it’s the reason distributors who sit between brokers and specialist lenders can make or break a deal being done.
‘We completed this in the time the client required and following detailed conversations with the lender; they agreed to go outside their usual criteria in order to lend both on product and exposure limits.”
Loan amount: £17,078,682.00
Rate: between 3.66% and 3.92%
Overall loan to value: 65%
Brokers know that no two clients are the same, no two sets of circumstances are the same and therefore no two deals they need to put together will be the same. Some are more complicated than others however, and when that is the case it can pay to use a specialist adviser with experience of packaging complex cases.
A couple approached us who lived in a £1,000,000 property with a mortgage of just £335,000 that they had purchased in October 2015. Mr is self-employed and despite earning £65,000 a year as an advertising director, the number of lenders who would consider the case was restricted due to the loan to income ratio and loan size for a second charge.
His wife worked part-time doing admin for him, earning £8,000. The pair wanted to raise additional funding on top of their existing mortgage to do some heavy refurbishment works including an extension and had successfully agreed planning permission.
They needed to borrow an additional £275,000 to fund it. Their home was valued at £1 million making the new loan-to-value 61%.
The case was complicated by the fact that Mrs worked for Mr company therefore we needed additional confirmation through their accountant around the income Mrs received.
Vantage Finance began conversations with the lender they considered the best fit but discovered that the loan amount was just in excess of the criteria usually accepted for second charge and also given the borrowers’ income situation.
Lucy Hodge, director at Vantage, said: “Often lenders will turn cases away if they don’t meet criteria. It’s for exactly this reason that relationships matter – particularly in the case of specialist lenders.
This isn’t about getting the deal done at any price, it’s about finding an affordable and appropriate product for the client even when it looks as though they have no options.
Understanding lender appetite in depth and having built trust with them means options can open up which is a positive outcome for everyone concerned.”
The deal completed in June with the lender that Vantage had originally identified following detailed conversations to establish confidence in the deal.
Loan amount: £275,000.00
Rate: 7.14% Variable
Overall LTV: 61%
It’s all in the details. Sometimes a deal can look like a no-brainer at first glance and it turns out to be something you wouldn’t touch with a barge pole. By the same token, some deals look unworkable but actually, when you dig a little deeper, they make perfect sense.
Vantage Finance was recently approached to raise £149,850 against a commercial property owned to allow him to invest in another property in the area around Oxford.
The problems were several: He is self-employed as a taxi driver. He has an outstanding loan on his cab for £227 every month, on top of that, he has a large amount of credit outstanding which made it difficult to show surplus income to cover rental voids.
Vantage managed to secure a commercial mortgage for the client with a lender that looked at the application as a whole and see that refinancing would benefit the client.
Lucy Hodge, managing director of Vantage Finance, said: ‘This type of scenario is where common sense should prevail but often doesn’t because lenders don’t have the appetite to dig into the detail.
That’s where our relationship with specialist lenders comes into its own: they trust our expertise and experience and they know we wouldn’t put a deal in front of them that didn’t make sense. As a result, we got the loan the client was looking for approved because we showed that by refinancing, he was actually £1,754 a month better off having consolidated his debts.”
Loan amount: £149,850
Rate: 5.15% + Libor with a 1.5% fee
There are few who would disagree that the stricter affordability rules introduced under the Mortgage Market Review have benefitted the market, preventing borrowers from overstretching themselves and getting into financial difficulty.
However, strict rules will by their very nature pose problems for people who don’t fit the formula of what affordability looks like.
One such deal came across our desks recently. A British couple had moved to Dubai some years ago to work on contract as teachers.
Quite sensibly, given their contracts expire in June 2017, they were considering a return home and wanted to purchase their first property in Oxfordshire.
The problem? They technically have no income in the UK, no job from June 2017 and no way of proving their affordability.
Add to that the fact their deposit was gifted and that they currently reside outside of the UK, most lenders simply said no.
Vantage Finance on the other hand approached a specialist lender which was prepared to take the couple’s existing income in Dubai as indicative of their earning potential once they returned to the UK.
Lucy Hodge, managing director of Vantage Finance, said: “Arranging mortgages for borrowers earning in a foreign currency or who are bringing money into the UK from abroad incurs all sorts of challenges. But these are not insurmountable.
Most situations are resolvable but it’s in circumstances like this when knowledge and expertise in the specialist sectors are invaluable. Deals like this are doable, but not if you’re simply relying on a sourcing system. The computer might say no where we can say yes.”
Loan amount: £252,000
Rate: 3.59% interest-only fixed for two years