We are often approached by individuals who are forced to change their high profile careers, raising capital for new ventures, at a time when their income may be falling. While the vast majority of potential clients have built up a significant investment portfolio/assets over the years, income may be fairly infrequent although it can often be substantial. As we know, traditional banks prefer to see regular income so this type of situation, although fairly common nowadays, can be challenging at times. There is also the issue of reinvesting funds into a fledgling business, which may or may not succeed, and the additional risks associated with this.
The client in question was looking to raise £1 million against their main residence in a switch of career and investment into a new business. The scenario was as follows:-
Property value: £4 million
Funds required: £1 million
On the surface this was a fairly simple transaction, borrowing against a £4 million property on a 25% LTV. However, as we touched on above, there were a number of issues to take into consideration, fairly unique to this scenario.
After an in-depth chat with the client it became obvious we would need to look towards private banks as opposed to traditional high street lenders. While the client’s income was irregular it was still fairly frequent from a mixture of marketing and advisory roles. This relative unpredictability effectively ruled out approaching traditional high street lenders from day one.
Wealth: Investment portfolio
Income: Irregular but frequent
So in summary we have a client with an investment portfolio, irregular income, approaching a change of career and looking to raise £1 million for a new business venture. It is not difficult to see where traditional banks, and to a certain extent private banks, would have issues. As the funds were been raised to invest in a business this is could be best described as non-traditional and carrying a greater than average degree of risk. However, using our vast array of contacts in the market we began work on a solution which would highlight the client’s standing, investment wealth and credentials going forward.
In the end we took what can best be described as an “old school” approach to private banking which included the traditional meet and greet. We were able to highlight the client’s previous employment, their standing in the industry, contacts built up over the years as well as their significant investment wealth. This old school approach, together with a traditional review of income and assets, certainly paid dividends and we were able to secure the funds.
Mortgage: £1 million
LTV rate: 25%
Fixed rate: 4.45%
While the interest rate of 4.45% may appear slightly expensive, we need to remember the client’s income situation as well as how the £1 million would be invested. Even though we were fully aware of their contacts in the industry, experience going forward and potential, any new business carries a significant degree of risk. As a consequence, this was reflected in the 4.45% headline rate. The process took just seven weeks from start to finish, the capital was injected into the new business and this now provides income for the client and their family.
We are well aware that many of our high net worth clients can be forced to change careers/business paths at a relatively early age. While the vast majority may have built up significant assets during their peak income periods, the crossover phase between careers can see income fall dramatically. As we have seen time and time again, our contacts in the private banking sector tend to take an overall view of the situation rather than focusing on short term income streams. In this particular scenario, the fact that the £1 million fundraising equated to a relatively low 25% LTV obviously gave the lender a significant degree of insurance in the event of any financial difficulties.
We all know the term “thinking outside the box” is used far too often but this is an area in which we specialise. While private banks and niche lenders do tend to be more flexible there is still a role for traditional banks – although not in this particular case. In this situation we utilised our contacts to highlight the client’s overall finances and potential going forward.
If you find yourself in a similar situation please feel free to call for a no-obligation chat and we can discuss your plans in more detail and the income streams/assets you may have available. We can also discuss the latest market rates and consider the best deal structure for your particular scenario.