Our self-employed clients, running their own marketing company, were looking to raise a mortgage of £600,000 on a property valued at £800,000 (75% Loan to Value) to replace their current mortgage and to fund a large subterranean extension. The clients wanted an interest-only mortgage with no repayment vehicle specified; the loan to be repaid partly by way of substantial profits being made within their business.
To prove income, they needed to use their previous year’s accounts as the current financial year was not yet complete and they did not wish to use projections and interim accounts. The company had also changed from being a partnership to a limited company mid-way through the year and had substantial retained profits.
The clients were on the point of selling their property and moving on after some bad advice and several failed attempts to get necessary funding for the extension. The property had been their family home for several years, but, with three children, they had outgrown the space, and without the extension it was no longer suitable.
We presented the case to a bank who agreed to work purely off an accountant’s reference for income and were not concerned about the change in company structure or retained profits. The bank agreed to lend 60% of the value of the property on an interest-only basis with the eventual sale of the property to cover this portion of the loan and 15% on a capital repayment basis. They agreed to this after calculating that, after the extension works, the property would be worth in excess of £1m and the bank’s exposure would therefore be less than 60%.
The part interest-only, part repayment loan of £600,000 was for a term of 17 years, lent at an initial rate of 3.25% fixed until 1 May 2014, reverting to 4.54% for the remainder of the term. (APR 4.5%* - the overall cost for comparison) Early repayment charges of 2.5% of the loan balance outstanding apply until 1 May 2014.
The clients paid a lender’s application fee of £99 and a product fee of £995.
*APR (the overall cost for comparison) calculation based on a 17 year term, part interest only, part repayment mortgage with £99 application fee, £995 product fee, legal and valuation fees of £2,000. The actual rate available will depend on your circumstances. Ask for a personalised illustration.