Securing short-term finance ahead of a lifetime mortgage for property modernisation

What was the situation?

We were approached by a client who was looking to undertake some essential home improvements to their current residential property. The agreed plan was to complete the renovation, and then move onto a lifetime mortgage as their current interest only mortgage had come to the end of its term.

Having lived in the property for over 20 years, the family home held a lot of sentimental value and was in a good location, however, needed a cash injection to modernise it internally. Due to the clients being in their late 70’s, they also thought it might be wise to make some amendments to fixtures and fittings that would increase their accessibility and independence as they continued to age.

What was the issue?

The client was only receiving a modest pension income meaning we were unable to secure a traditional mortgage finance or a retirement interest only product. The property had also not passed the valuation with a lifetime mortgage lender due to its current state.

When assisting older borrowers with property finance, there are strict regulations in place to ensure they fully understand the financial commitment they are about to undertake. Due to the client’s age and other factors, they fell into this category. Many lenders had advised that they would be unable to lend due to a combination of the client’s age, vulnerable client status and required loan amount. However, I was determined to find them a solution that would work long term for their needs.

What was the process?

As this loan was for the client’s primary residence, it fell within the FCA’s definition of a regulated transaction. It quickly became apparent that we would struggle to secure the full loan amount required on a lifetime mortgage in the first instance. This was partly due to the property not passing the valuation with a lifetime mortgage lender.

I suggested that it might be beneficial for a younger relative to be party to the loan and involved in the transaction. They had a legal background which provided the lender with comfort that the client was aware of the commitment they were about to undertake.

What was the solution?

By assessing all available options, we opted for a short-term loan with a view to move onto a lifetime mortgage once the work was complete. By using the short-term loan for modernisation funds, this would allow value to be added to the property. At the time of refinancing the short-term loan, the home would be valued at a higher amount, and therefore more likely to pass the criteria of a lifetime mortgage lender.

By adding the younger relative, we were able to secure competitive terms with a short-term lender that was able to provide loans on main residences. Furthermore, to avoid any future negative implications for obtaining the lifetime mortgage once the work was complete, I had negotiated with the lender that they were involved as a co-borrower, but kept off the title deeds of the property.

We were able to secure the client’s desired loan amount, which allowed us to redeem the current lender (as they had approached the end of the term) and raise sufficient monies for the home improvements, secured at a very competitive rate for 12 months. The clients thought the process was very advantageous as we were able to secure the loan quickly, so that they could start the work ASAP, and at a competitive interest rate.

Need some help in securing short-term specialist property finance? Our experts are on hand to assist. Call 020 3903 9875 to speak to an adviser, or use our online contact form.