Russian national, equity release on a self-build property

31st January 2020
VICE PRESIDENT

Enzo Marchetti

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Russian national, equity release on a self-build property
Enzo Marchetti
VICE PRESIDENT

Enzo Marchetti

As the cost of luxury property continues to rise, many long-term investors are looking towards acquiring land and building their own dream home. We were recently approached by a Russian national who was looking to maximise equity release on a villa he had built in Mougins, France. Situated in the Alps-Maritimes department in south-eastern France, and not far from Cannes, this is an area of the world where property prices reflect demand from high net worth individuals.

The potential client had built a villa valued at €20 million and was looking to maximise equity release on competitive terms. There were a number of issues to take into consideration which we were ultimately able to address as a consequence of our market contacts.

Client scenario

The scenario was as follows, a large business owner from Russia with a Russian passport had acquired land in the Mougins area of France. He was able to finance the building of a luxury villa and was now looking to release equity of €12 million on the €20 million property. One of the main issues was the way in which the property ownership was structured which meant that many traditional mortgage lenders would not even enter negotiations. This was certainly one of those situations where we maximised our contacts to create a degree of competition and secure the best deal for the client.

The basic client scenario was as follows:-

Client: Russian passport with significant business interests in Russia
Income: High net worth individual
Property value: €20 million
Property ownership: Complicated ownership structure
Proposed equity release: €12 million

While there has been a huge increase in the number of Russian investors acquiring property assets in France, the UK and other luxury property markets, this can still cause difficulties. It is sometime challenging to clarify income streams in a manner which satisfies mortgage lenders. Ultimately, there are always niche lenders who are willing to negotiate on complicated situations which in this instance involved a significant degree of assets under management (AUM).

So, how did we secure a €12 million equity release while satisfying the concerns of mortgage lenders and injecting a degree of security?

Issues to address

As we touched on above, there were a number of issues to take into consideration such as the client’s country of residence, business interests, income, property ownership structure and relevant collateral. As we have significant experience dealing with Russian nationals looking to acquire overseas real estate, we already had a number of lenders we could speak to.

In summary the issues to address were as follows:-

Client: Russian national (Russian passport)
Income: Difficult to clarify
Equity release: Looking to raise €12 million on a €20 million property
Proposed LTV ratio: 60%

It was clear from the outset that only a limited number of mortgage lenders would be willing to enter into negotiations. It was therefore vital that we presented the client’s situation in the best possible light allowing us to inject a degree of competition which might otherwise have been limited. Even though we were dealing with a significant funding requirement, the structure and process is no different to any other fundraising with regards to income and security.

The solution

Despite the fact that the property ownership structure was complicated and it was difficult to clarify the client’s income, we managed to secure the full €12 million equity release. It was fairly obvious at the outset that we would need to utilise an assets and management (AUM) arrangement which would create a degree of insurance for the successful mortgage lender. In this instance we were able to self-fund an AUM arrangement of €4 million from the equity release which would be held separately as part of the equity release arrangement. As a consequence, the client received net €8 million and would receive the additional €4 million AUM funding once certain conditions had been met further down the line.

After utilising our many contacts in the mortgage market, as a consequence of our independent status, we were able to secure the full €12 million equity release on extremely favourable terms.

Funding partner: Specialist bank
Property value: €20 million
Equity release: €12 million (gross)
LTV ratio: 60%
Mortgage duration: Five years
Mortgage type: Interest only
Mortgage rate: 1.4%
AUM arrangement: €4 million
Net equity release: €8 million

It is fair to say that the €4 million AUM arrangement was critical in giving the lender sufficient collateral to proceed. This also ensured a very competitive mortgage rate of 1.4% which was fixed for five years. UK base rates currently stand at 0.75% while European base rates stand at 0%, therefore, a 1.4% rate is very competitive.

Our independent status allows us to speak with more than 300 lenders in the worldwide mortgage market. We have extremely good relationships with traditional banks as well as niche lenders and specialist groups. This ensures that we always have third parties we can speak to in order to inject a degree of competition into any fundraising operation. It is fair to say the client was extremely pleased with the outcome, a 1.4% interest rate fixed for five years. The €12 million equity release was also towards the top end of expectations. While €4 million was used in the AUM arrangement this would be returned to the client in due course if mortgage conditions were met in the future.

What can Enness do for you?

Over the last 18 months we have dealt for more than 80 different nationalities situated across the globe. We have seen complicated income streams, challenging property ownership structures and some extremely complex funding arrangements. With this particular equity release case study there were challenges regarding the client’s nationality and the fact that their income was based on an array of Russian business interests. The property in question was built in an extremely popular luxury resort where there would always be significant interest in high-end property.

If you ever find yourself in a similar situation we would welcome the opportunity for a no obligation discussion about your requirements. Due to our contacts in the marketplace, and ability to obtain real-time rates, we can put together a number of potential solutions to your funding needs. This allows you to compare and contrast cash flow and financial liabilities in the short, medium and long-term. A degree of competition is always helpful as this ensures we can secure the best terms for any funding structure, sculptured around your particular situation.

The Global High  Net Worth  Mortgage Guide

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