Complex Mortgage for £7 Million Property

• Client: British national and director of a family-owned business group
• Property: New residential property valued at approximately £7 million
• Challenge: Low personal salary did not reflect the client’s wider financial position, while a significant bonus was not due until the following year
• Finance: Blended mortgage secured against the existing £1.9 million home and new property, with total borrowing initially exceeding 90% LTV

I recently assisted a British client of Greek heritage who was looking to purchase a £7 million property that he intended to make his long-term family home. The client had recently taken on a larger Director’s role within his family’s substantial business group, but the way he structured his personal remuneration created a significant challenge when it came to arranging the mortgage.

Rather than taking a large salary from the business, the client preferred to retain liquidity within the company. As a result, his declared personal income did not accurately reflect the wider financial position of the family business or his anticipated future earnings.

The client was also due to receive a substantial bonus the following year, but this would not be paid in time to help him complete the purchase. On a conventional affordability assessment, his current salary was therefore insufficient to support the mortgage required for the £7 million property.

There was, however, significant equity within his existing property. His current home was valued at approximately £1.9 million, providing an opportunity to look at the transaction as a wider financing structure rather than considering the new property in isolation.

I approached an investment bank with which Enness had an established relationship and presented the client’s wider financial circumstances. We agreed a structure whereby the existing property would be remortgaged and the borrowing secured across both properties. This created a combined loan to value (LTV) of more than 90% at the outset.

That level of borrowing was highly unusual for a transaction of this size, but the structure provided a route for the client to proceed with the purchase before receiving his anticipated bonus.

The resulting mortgage was split between two elements. Part of the facility was fixed for five years at 2.79% at the time, while the remainder was arranged on a variable rate of 3.85% above Bank of England Base Rate. The variable element gave the client greater flexibility to make substantial repayments without the same early repayment restrictions that applied to the fixed portion.

The repayment strategy was for the client to use his anticipated bonus to reduce the outstanding borrowing within the first 12 months, bringing the overall LTV closer to 70%.

The structure provided a solution to a particularly complex affordability challenge by taking into account the client’s existing property, wider financial circumstances and anticipated bonus. It demonstrates how a complex mortgage can sometimes require a bespoke approach where conventional income-based lending does not reflect the full circumstances of a high-net-worth borrower.

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. Higher-LTV borrowing increases the level of debt relative to the value of the properties securing the mortgage. Variable-rate borrowing can also result in higher monthly payments if the underlying interest rate increases.