Our clients bought a house for £1 million cash in August 2011, having returned from 30 years living and working abroad. They then found another house which they preferred, valued at £1.35 million. The clients have overseas property worth approximately £3.9million that is rented out and used as a base during visits. They also have overseas savings of £4million that generates a 6% yield; this is the source of their income.
They were told by their high street bank that the maximum mortgage they could borrow would be £500,000 due to their short history in the UK. The bank suggested that they sell their current unencumbered property to raise the remaining £850,000 they would need to purchase the new house. However, due to the very short ownership period, their estate agent suggested that they would almost certainly have to take a loss on the current property, once costs of sale had been taken into account.
Our private finance experts looked at the case and met with the clients. They were open to ideas and we suggested keeping both properties. We suggested raising £500,000 as a Buy to Let (BTL) mortgage on the current home and then £850,000 as a residential mortgage on the new house. This allows the full purchase price to be raised without selling and, more importantly, without transferring any cash from overseas (as this would have been expensive due to exchange rates and savings withdrawal charges). A private bank was identified as willing to lend on the following terms and also to provide a superior bank account to the one the clients had been offered by their high street bank.
The £500,000 BTL mortgage is on a 4.75% standard variable for 5 years with no early repayment charges, thus leaving open the option of a sale. (APR 5.4%* - the overall cost for comparison). The clients paid lender’s arrangement fees of £2,500 (0.5% of £500,000).
The £850,000 Residential mortgage is on a 2.99 % fixed rate until 03/04/2014. Early repayment charges apply. (APR 4.0%* - the overall cost for comparison). The clients paid lender’s arrangement fees of £4,250 (0.5% of £850,000).
The clients were very happy that they had not been forced to sell their existing property so soon after purchase and had been able to raise private finance in a creative and cost effective way.
*The Buy to Let Mortgage APR (the overall cost for comparison) calculation based on a 5 year term, interest only mortgage with £2,500 arrangement fee, legal and valuation fees of £5,000. The actual rate available will depend on your circumstances. Ask for a personalised illustration.
*The Residential Mortgage APR (the overall cost for comparison) calculation based on a 2 year term, interest only mortgage with £4,250 arrangement fee, legal and valuation fees of £5,000. The actual rate available will depend on your circumstances. Ask for a personalised illustration.