Our client wished to purchase a new main residence in Berkshire for £1.37 million for which he required a total new mortgage facility of £1.5 million for the purchase, stamp duty and property improvements. He wished to retain two existing properties (one, the main property, worth £2.25 million, with a £600,000 tracker mortgage, and another worth £850,000, with no mortgage). The current main property will be let for £9,500 per month to private tenants and the £850,000 property is already let.
The client is a company chairman in his fifties, with multiple income streams (salary, bonus, pension, dividend, rental, investment and private consultancy). He has very significant net assets for which he was able to provide good visibility.
Our first job was to move the existing £600,000 tracker mortgage to the new property. This avoided potential early repayment charges (ERCs) and ensured that the competitive base rate tracker deal continued. Then a special rate was negotiated with a private bank at 2.25% over base rate (meaning a payment rate of 2.75% and APR of 3.1%* - the overall cost for comparison) for the term of the £1.5 million loan, to be secured against the two existing properties (at a combined loan to value of under 50%).
Considering these houses were both to be let, the client was delighted with a pay rate of 2.75% with no ERCs to retain total flexibility. The mortgage interest could also be offset against the rental income for tax efficiency. As a 50% taxpayer it was highly advantageous to secure the larger loan against the let houses. The client agreed for the private bank to manage some existing equity investments which resulted in a lower rate being offered. The client will redeem both interest only loans in due course when he decides to sell part of an investment portfolio. With this solution he can time the share sales at a better moment in the stock market cycle.
The client paid an arrangement fee of £7,500 (0.5% of the £1.5 million loan amount).
*APR (the overall cost for comparison) calculation based on a 5 year term, interest only mortgage with £7,500 arrangement fee, legal and valuation fees of £5,000. The actual rate available will depend on your circumstances. Ask for a personalised illustration.