Mortgage for Client with Complex Income Structure

• Client: Property developer
• Property: Residential property in Gerrards Cross, Buckinghamshire
• Property value: £1.65M
• Loan amount: £1.24M
• LTV: 75%
• Mortgage type: Interest-only
• Term: 25 years
• Fixed period: Five years

Arranging a residential mortgage can become more complex when a borrower’s income is generated through a property business and a significant proportion of the company’s reported profits comes from property revaluations. Enness was approached by a property developer with several residential and commercial units held across different companies and personally, who was looking for a mortgage with as much of the borrowing structured on an interest-only basis as possible.

The client was looking to purchase a residential property in Gerrards Cross, Buckinghamshire, valued at approximately £1.65M. The required mortgage was £1.24M, representing a 75% loan to value (LTV).

A key consideration was affordability. The client needed income generated through their property businesses to be taken into account when assessing the mortgage application. However, a significant proportion of the reported income came from property revaluations.

This presented a challenge because revaluation gains are not necessarily treated by lenders in the same way as recurring, liquid income. A revaluation can increase the reported value of a property company’s assets without creating cash that can be used to service mortgage payments. The client also held a 25% shareholding in the relevant business, which further restricted the number of lenders that could consider the company’s profits for affordability purposes.

Many lenders applying standard affordability criteria would require a larger ownership interest before taking a proportion of company profits into consideration. Consequently, identifying a lender with a more flexible approach to the underlying accounts was important.

Enness approached a private banking arm of a high-street bank with which it had an established relationship. The lender was able to consider the bottom-line figure from the company’s accounts without requiring the same level of adjustment to the underlying income that some other lenders would have applied.

This approach enabled the client’s property business income to be considered as part of the overall affordability assessment despite the complexity of the accounts. The lender was also able to accommodate the client’s preference for an interest-only mortgage.

The resulting facility provided £1.24M of borrowing against the £1.65M Gerrards Cross property, representing a 75% LTV. The mortgage was structured over a 25-year term with a five-year fixed period and an interest-only repayment profile.

The structure gave the client the requested level of borrowing while also providing the cash-flow characteristics associated with interest-only lending. The case demonstrates the importance of presenting complex income in a way that allows the appropriate lender to assess the wider financial position rather than relying solely on standard high-street affordability criteria.

Enness works with lenders across the high-value and specialist mortgage markets and has experience with applications involving property businesses, complex income structures, multiple companies and high LTV requirements. The appropriate mortgage structure will depend on the borrower’s individual circumstances, income, assets, liabilities, property and lender criteria.

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, valuation, due diligence and lender criteria. Terms, rates, LTVs, fees and availability may vary depending on individual circumstances. The terms described relate to a historical case and are not indicative of current or future pricing.

Risk Warning:
Your property may be repossessed if you do not keep up repayments on your mortgage. Interest-only borrowing requires the outstanding capital to be repaid at the end of the agreed term or when otherwise due, and borrowers should ensure that a suitable repayment strategy is in place. Property values can fall as well as rise, and complex income structures may affect the availability and cost of mortgage finance.