In recent times we have seen investors looking to diversify their property portfolios with the introduction of overseas assets. Much of this has been fuelled by mortgage brokers such as Enness who have access to all major real estate markets around the world. As a consequence, we are regularly approached by high-profile investors looking to expand their UK property portfolios. In spite of the impending threat of Brexit it would seem that overseas investors still have a very healthy appetite for UK property assets. However, when investors are based overseas with a minimal UK footprint it can prove challenging to raise funds.
This case study involves a high profile overseas family who were potentially politically exposed persons (PEPs). Governments around the world have tightened the regulatory burden somewhat in recent times as a consequence of money-laundering and other criminal activities. In some cases, as in this case study, it can make it difficult to raise funds for perfectly legitimate transactions. As a consequence, raising funds in these kind of scenarios can often come down to our depth of personal relationships across the financial markets.
This case study involved four members from the same high-profile family looking to expand their joint UK property portfolio. The fact they already had a degree of UK property exposure was of assistance but in reality there were other issues to consider. As we tend to find with many PEP cases, the finances supporting such investments that can be relatively complicated and not always appreciated by traditional mortgage lenders. As a consequence, at a very early stage we realised that we would be looking down the private bank/niche lender route to accommodate this client. Even though we have a large number of contacts in this area of mortgage finance we would need to find a specialist in this particular region.
One of the challenges we find when traditional mortgage lenders, and some private banks/niche lenders, are taken out of the equation is a lack of natural competition. Part of our role as a mortgage broker is to create as much competition as possible amongst our lending contacts so as to obtain the most competitive rates and terms for our client. This was certainly one of those times when we would need to use our personal contacts in the marketplace to obtain the best possible terms.
The basic scenario was as follows: –
Client: High-profile family in the Middle East
Client status: Potential PEP
Client income: Private trust with Middle East property exposure
Property strategy: Increase UK exposure
Property location: London
Property value: £1.25 million
Funding required: Maximum
While we often deal for overseas investors, clients benefiting from trust income and politically exposed persons, we don’t often see these three elements in one fundraising proposal. So, as we touched on above, there was no way any traditional mortgage lender would be flexible enough for the situation and even some private banks/niche lenders might take a step back. Yes, we had our work cut out!
A recap of the issues to address included, overseas investors, trust income, potentially politically exposed persons and no individual UK footprint. It was beneficial that the clients already had UK property in their portfolio, they were simply looking to expand their UK exposure, but this fundraising would still present challenges with mortgage lenders. As we touched on above, the source of their income was perhaps the greatest complication as it came from a trust which owned a portfolio of Middle East property. Any mortgage lender would have to be satisfied about the source of the income and the reliability that this would continue in the longer term. These are not easy issues for many mortgage lenders to accommodate but we certainly went into this fundraising with our eyes wide open.
It is also worthwhile noting at this point that we undertake a number of meetings/communications with clients in the early days. This allows us to not only clarify their fundraising requirements but also understand their wider financial landscape and how this may be utilised to secure funding on the best terms possible. We often find that clients have additional assets which could be used as collateral and multiple income streams which can obviously assist with the affordability test. In reality there was no issue with regards to the level of trust income used to support the mortgage funding but it was more a case of where it came from that raised some red flags.
The issues to address with this fundraising were as follows: –
Client location: Middle East
Client income: Middle East trust (invested in Middle East property)
Client status: Overseas investor/PEP
Funding requirement: Maximum
In reality, there were a number of challenges and the complexity would require detailed negotiations with even our closest funding partners. However, we have access to more than 300 lenders across the globe including traditional lenders, private banks and niche lenders. We are also experts in bespoke fundraising activities and have a reputation for “thinking outside the box”.
It was fairly obvious from an early stage that we would require the services of a private bank with a particular interest in the Middle East. As this has been a particularly buoyant market for UK property investors we were already aware of numerous private banks/niche lenders we could approach. There was the issue of the client’s status, and the source of their income, but those mortgage lenders with a specialist interest in the Middle East are well aware of these challenges which tend to be quite common.
So, after detailed negotiations with a number of interested parties we were able to secure maximum funding on very competitive terms. The fact that the rate was linked to LIBOR meant that the client was subsequently able to benefit from falling base rates around the world. We tend to find that many mortgage lenders have an interest in specific markets and as a consequence, they tend to be the most competitive lenders in that particular area.
The broad details of the funding solution were as follows: –
Property value: £1.25 million
Loan type: Variable interest rate mortgage
Funds secured: £875,000
LTV ratio: 70%
Interest rate: 2.5% + 3 month LIBOR
Loan term: Five years
It is safe to say that the client was extremely content with the level of funds raised and the competitive terms we were able to secure. This is a perfect demonstration of the way in which we can utilise our many contacts across the mortgage lending market. Investors from the Middle East have shown a particularly strong interest in UK property in recent times. As a consequence, we know of many specialists in that area who are fully understanding of the type of regional challenges such as those in this case study.
The fact we have clients spread right across the globe means that we have deep-seated knowledge and experience in many different markets. As we touched on above, the Middle East has been a particularly strong market for UK property in recent times. This has allowed us to build very strong relationships with specialists in that market, lenders who are perhaps a little more understanding of regional complexities. This is something which a UK based mortgage lender may initially consider but may not necessarily appreciate in full. One of our brokers had a close relationship with the CEO of a specialist Middle East lender which initially allowed him to open the door and then later secure property portfolio finance on impressive terms.
The worldwide real estate market is changing; new trends are emerging on a regular basis and funding requirements are literally spread right across the globe. Thankfully, we have some very strong relationships with an array of different traditional lenders, private banks and niche lenders. This allows us to at least enter into sensible negotiations for potentially complex fundraisings and see what can be done. Using real-time market rates we will be able to put together a number of potential solutions for your fundraising requirements. This will allow you to compare and contrast cash flow as well as short, medium and long-term financial liabilities. At this point it is worth mentioning that while we are conscious our clients often require maximum lending, this must be done in a controlled manner which does not overstretch their finances.