The world of real estate is truly global with many ultrahigh net worth and high net worth individuals owning multiple properties in different countries. Despite the ongoing pressure on sterling we still see many individuals looking to expand their property portfolios by acquiring overseas assets. We currently live in challenging times with the 2008 US mortgage crisis leading to a worldwide economic collapse from which many countries have not fully recovered and now the coronavirus. As a consequence, countries such as Switzerland (traditional safe havens) seem to be attracting significant interest from overseas investors. While there are various local regulations to overcome regarding property ownership, this is a trend which is likely to continue for some time to come.
We were recently approached by a client who was looking to release equity from their UK townhouse in order to acquire a property in Switzerland. While there are obvious currency issues to take into account, affordability tests to carry out and competitive rates to be negotiated, this is the type of challenge that we relish. The fact that we are an independent mortgage broker means that we have access to more than 300 mortgage lenders not just in the UK but spread right across the globe. Not only does this give us access to a variety of different currencies but it also enhances our knowledge of local markets which we can then pass on to our clients. We will now take a look at this particular case study which turned out to be very interesting.
There is no doubt that the London property market has been one of the star performers in recent years (both before and after the 2008 US mortgage crisis). As a consequence the client’s London townhouse had increased in value to around £1.3 million. For many property investors the key to building a long-term portfolio is the ability to maximise assets to increase liquidity. In this instance the client was looking to remortgage their UK property and use funds to acquire a home in Switzerland valued at around £2.4 million. So far so good, however, this is where it started to get interesting.
The client was actually a UK national with their main family home in the UK (although their time was split between the UK and Switzerland). They had significant assets/business interests in Switzerland and their income was predominantly in Swiss Francs. We knew from a relatively early stage that traditional mortgage providers would shy away from this particular scenario. Even though Switzerland has extremely tight regulations with regards to money-laundering and taxation, raising finance for a UK national with predominantly Swiss Franc income is moving more towards a specialist field. Then we also have the affordability factor which would be carried out on both the UK remortgaging and the mortgage required for the Swiss property. Can you see how this may get a little complicated?
So, the basic scenario was as follows:-
Client: UK national
Resident: Time split between the UK and Switzerland
UK property valuation: Circa £1.3 million
Proposed Swiss property valuation: £2.4 million (CHF2.9 million)
Income currency: Swiss Francs
Funding requirement: Maximum available
When taking on a client funding request we always undertake detailed investigations to get an idea of the client’s overall financial position. They may have additional assets to use as collateral, perhaps other income streams which can be included in the affordability calculations or there may be bespoke mortgage funding structures available which are more suited to their needs. In this situation it was very clear from the outset that the LTV required will be fairly high on the UK property and even higher on the Swiss home. It was also fairly obvious that we would require the services of specialist mortgage providers/private banks as opposed to more traditional funding alternatives.
As we touched on above, the required LTV ratio on the UK property and the proposed Swiss acquisition would be pushing traditional ceilings. There was also the fact that the client’s income was all Swiss Franc based and while a high net worth individual they would still be pushing traditional affordability calculations. We also had the issue that while the client was a UK national, they split their time between the UK/Switzerland and were a Swiss taxpayer. All very confusing!
Slowly but surely all of the details were drawn from the client which enabled us to take an overall view of the situation. The requirements in summary were as follows:-
UK property value: £1.3 million
Required remortgaging LTV ratio: 60%
Funds from remortgaging: £780,000
Swiss property value: £2.4 million
Required mortgage LTV ratio: 85%
Mortgage value: £2.04 million
Income: Predominantly Swiss Francs
Affordability factor: Stretched
A 60% LTV ratio on the UK remortgage together with an 85% LTV ratio on the Swiss property acquisition would leave circa £350,000 surplus capital. As the Swiss mortgage LTV ratio on offer was relatively high at 85%, this meant the deposit requirement was a relatively modest £396,000. You will also notice there was no opportunity to introduce an AUM arrangement into the fundraising which required us to push for the relatively high LTV ratios. The surplus capital of circa £380,000 would give some headroom to cover potential property price and currency movements not to mention charges.
As many of the leading mortgage lenders have exposure in all of the major real estate markets, we had a number of contacts we could approach when ready to negotiate terms and conditions. It is imperative that we are able to bring as many parties to the table as possible so that we can negotiate the best terms for our clients. We are also able to call on our years of experience and the trust factor with lenders which has been built up over time. So, the challenges of nationality, affordability, income, LTV ratios as well as mortgages on properties in different countries certainly made this case study challenging!
It was fairly obvious from the start that we would require the services of a private bank with traditional lenders uncomfortable dealing with UK nationals with predominantly overseas income – looking to acquire overseas property. There would no doubt have been some traditional lenders willing to discuss terms but these terms would not have been competitive compared to niche lenders and private banks. If we had been able to introduce an AUM option this would no doubt have made negotiations a little simpler but many clients prefer not to tie-up their assets under management.
Timing was obviously very important with this fundraising and thankfully we were able to accommodate the client in full. We managed to secure £780,000 from the remortgaging of the client’s UK property while raising £2.04 million via mortgage on the proposed Swiss acquisition. As the Swiss property only required a deposit of £396,000, this left a surplus of just over £380,000. The 60% LTV ratio for the UK mortgage was towards the higher end of the range but the Swiss fundraising was in almost untouchable territory at 85%.
The exact details of the funding solution were as follows:-
UK property value: £1.3 million
Remortgage LTV ratio: 60%
Funds raised: £780,000
UK mortgage rate: 2.49%
Term: Two year variable
Swiss property value: £2.4 million (CHF2.9 million)
Mortgage LTV ratio: 85%
Funds raised: £2.04 million
Deposit on Swiss property: £396,000
Swiss mortgage rate: 0.8%
Term: 10 year fixed
Surplus funds: Circa £380,000
So, not only were we able to secure both mortgages on highly competitive rates but the client was actually left with a surplus of circa £380,000 on the two transactions. At the time of the fundraising Eurozone base rates were significantly below those of the UK which led to a very competitive mortgage rate of 0.8%. One of the main factors in completing the two transactions was our ability to work with a mortgage provider willing to accept UK nationals with predominantly Swiss Franc income. There was also the traditional affordability test with which private banks are more flexible especially where ultrahigh net worth and high net worth individuals are involved.
The key to this transaction was looking at both fundraisings in isolation and then together. There was also the ability to work with lenders who have no issues with a UK national, Swiss taxpayer where their income is predominantly in Swiss Francs. This again illustrates the strength of our relationships in the mortgage lending market and our ability to save time by approaching only those who are able to supply the funds required.
The ability to mortgage and remortgage properties across the globe, taking into account different currencies as well as often circumventing traditional affordability calculations was paramount in this case. This is a far more common occurrence than many people could imagine as the real estate market today is truly global. There is also the fact that many of the 300 lenders across the global market have exposure to an array of different countries. This can help with currency issues, local property market regulations and the ability to incorporate foreign currency income into their calculations. It was fairly obvious from an early stage that this case study would require the services of private banks and/or niche lenders.
If you ever find yourself in a similar situation to the above client we would welcome the opportunity to discuss your requirements in more detail. We have the knowledge, the know-how and the contacts to complete traditional fundraisings as well as our specialist field, bespoke mortgage funding. We will be able to provide you with a number of different solutions for your requirements and with access to real-time market rates you can compare and contrast cash flow as well as short, medium and long-term financial liabilities. While many of our clients approach us looking to maximise their income and their assets to raise funds, this needs to be done within a controlled environment. There is no benefit in overstretching finances and cash flow and we will be brutally honest in our assessment of the various options.