£2.5 million interest only mortgage for young private equity professional

What was the situation?

The last 12 months have had us all yearning for more space – whether that’s more room for living indoors or more green space outside. This was very much the case for a recent client of mine, a young private equity professional who was looking to upsize and purchase a larger home for their growing family in the wake of COVID-19.

With a baby on the way, our client was eager to sell their current two bedroom flat in the City and purchase a £3.25 million Victorian terrace house in South West London with much more space and a garden. They were looking to secure 75% loan to value (LTV) interest only mortgage with a borrowing of just under £2.5 million.

What was the issue?

The main issue for our client was that they weren’t quite there when it came to satisfying traditional affordability checks set by high street banks.

Although they earned a large salary with a generous bonus structure, the borrowing amount was still considerably out of reach. Whilst this would no longer be the case in the next few years as they continued to build their career, their circumstances – namely the new baby and post-COVID climate – had triggered more of an urgent requirement for the family to move.

As such, we knew we needed to use our knowledge of the private equity space to explore our client’s full wealth picture and earning streams to help structure a facility that would reflect their full income makeup.

What was the process?

Fortunately for our client, we are well versed when it comes to securing mortgages for those working in the private equity space. Having worked with a vast number of private equity borrowers in the past, we know exactly where to go and which trusted lenders within our network will understand the more complex nature of private equity income streams. Ultimately, this means the process moves forward a lot more quickly with minimal fuss for our clients.

Due to our previous dealings, we knew our client’s income would include what’s known as ‘carried interest’. In basic terms, carried interest is a share of any profits that the general partners of private equity receive upon completion of investment deals. This forms part of their total compensation package and is typically in the form of shares that tend to vest over the coming years, or can be taken as a cash lump sum payment.

After some investigation of the client’s finances, it became clear that their fund had performed well in the past 18 months resulting in an additional £700,000 being added to their compensation package. As such, we needed to select a lender that we knew was au fait with carried interest and fully understood how private equity professionals work and earn in order to place the case accordingly.

Because of the anticipation and trajectory of our client’s line of work, and with the value of the carried interest that had been paid out in the last year and a half, we were able to source a trusted lender that was happy to work off these figures. This allowed the lender to look at an affordability model based upon his historic carried interest as well as his future vested shares potential, rather than their standard income alone.

What was the solution?

Working closely with the lender, we were able to secure this rather quirky deal over a five-year interest only mortgage basis on a variable rate of 2% over the Bank of England base rate, with a 1% arrangement fee.

Further to this, we were also able to negotiate the facility with no early repayment charges (ERCs). This suited our client perfectly as it meant they could borrow more on day one to get the deal over the line, but it also allowed the client the option to aggressively pay down the loan as and when they receive any supplementary income to reduce their overall debt exposure.

The client was thrilled with the result we managed to secure with the lender as it allowed them to step out and sell the existing property in order to buy their new home for a growing family. Not only did they appreciate the flexibility of the loan having no ERCs, but the nature of the interest only mortgage meant our client’s monthly costs were kept to a minimum, providing greater flexibility on repayments.

Lending solutions with LDN Finance

Are you looking to secure a high LTV interest only mortgage on a high-value property post-lockdown? At LDN Finance, our expert brokers have extensive experience in securing large loans on an interest only basis no matter how complex the circumstances.

We work closely with our trusted network of private banks and specialist lenders to arrange bespoke mortgage arrangements to suit your circumstances at competitive, market-leading rates. Get in touch with us today to organise an initial consultation.