Remortgage for £1.5 Million London Home

• Client: London-based consultant
• Property: New-build family home in South West London, valued at approximately £1.5 million
• Challenge: Existing bridging finance had become difficult to refinance after construction costs exceeded the original budget
• Finance: Residential remortgage with interest-only borrowing to clear the bridging facility

A London-based consultant recently approached me after struggling to find a lender willing to refinance bridging finance secured against his family home. The property was a new-build house in South West London, valued at approximately £1.5 million, where the client intended to live with his young family.

The original construction had gone over budget, increasing the amount the client needed to borrow against the property. What had initially appeared to be a straightforward residential financing requirement had therefore become more difficult from an affordability perspective.

The client had already approached several lenders but had been unable to find a suitable solution. One potential lender had indicated that terms might be available, but the proposed mortgage term was restricted to 20 years because of the client’s age. On a capital and interest basis, the resulting payments would have required borrowing of around 5.5 times income, which the lender considered unaffordable.

This left the client needing to refinance the bridging facility while also finding a structure that worked within the lender’s affordability requirements. The fact that the client was not considered high net worth by the lenders he had already approached further limited his options.

I knew that an interest-only structure could provide greater flexibility by reducing the immediate monthly payment requirement. I therefore approached a building society with which I had an established relationship and discussed the client’s wider circumstances.

The lender was prepared to consider a modest stretch beyond its usual income multiple by using an interest-only structure, allowing the client to refinance and clear the existing bridging facility.

There was also a potential future strategy that strengthened the application. The client had identified that a small portion of the grounds attached to the property could potentially be sold. This would allow him to reduce the outstanding borrowing and consequently lower the loan to value (LTV) in the future. The lender was comfortable taking this wider repayment strategy into consideration when assessing the application.

After having previously been unable to find a suitable lender, the client was able to accept a five-year discounted mortgage at 3.25%, with early repayment charges applying for the first two years. This provided a longer-term route away from the existing bridging facility while giving the client greater flexibility around his future repayment strategy.

The case demonstrates why specialist bridging finance expertise can remain important even after a bridging facility has been arranged. Having a clear exit strategy is essential, particularly where the original circumstances have changed during a construction project.

It also highlights how an interest-only mortgage can sometimes provide a more suitable structure where affordability is the primary challenge, subject to the lender’s criteria and an appropriate repayment strategy.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, property suitability and lender criteria. Terms, rates, LTVs and availability may vary depending on individual circumstances.

Risk Warning:
Your property may be repossessed if you do not keep up repayments on your mortgage or other borrowing secured against it. Property values can fall as well as rise. Interest-only mortgages require a suitable strategy for repaying the capital at the end of the mortgage term.