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 his growing family in the wake of COVID-19.
With a baby on the way, my client was eager to sell his 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. He was 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 my client was that he wasn’t quite there when it came to satisfying traditional affordability checks set by high street banks.
Although he earned a large salary with a generous bonus structure, the borrowing amount was still considerably out of his reach. Whilst this would no longer be the case in the next few years as he continued to build his career, his circumstances – namely the new baby and post-COVID climate – had triggered more of an urgent requirement for his family to move.
As such, I knew I needed to use my knowledge of the private equity space to explore my client’s full wealth picture and earning streams to help structure a facility that would reflect his full income makeup.
What was the process?
Fortunately for my client, I am 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, I know exactly where to go and which trusted lenders within my 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 my clients.
Due to my previous dealings, I knew my 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 my client’s finances, it became clear that his fund had performed well in the past 18 months resulting in an additional £700,000 being added to his compensation package. As such, I needed to select a lender that I 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 my 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, I was 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 his standard income alone.
What was the solution?
Working closely with the lender, I was 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, I was also able to negotiate the facility with no early repayment charges (ERCs). This suited my client perfectly as it meant he could borrow more on day one to get the deal over the line, but it also allowed my client the option to aggressively pay down the loan as and when he receives any supplementary income to reduce his overall debt exposure.
My client was thrilled with the result I managed to secure with the lender as it allowed him to step out and sell his existing property in order to buy his new home for his growing family. Not only did he appreciate the flexibility of the loan having no ERCs, but the nature of the interest only mortgage meant my client’s monthly costs were kept to a minimum which provided greater flexibility on repayments.
Lending solutions with LDNfinance
Are you looking to secure a high LTV interest only mortgage on a high-value property post-lockdown? At LDNfinance, 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.