With a well-established trading company, our client was sourcing an owner-occupier mortgage in order to swap renting for a mortgage, and to start a new business within the same premises.
At a glance:
- Owner-occupier mortgage to move from rent to own
- Adding to portfolio with additional rental opportunity
- Overcome the challenge of applying as a new business
The Case:
As an experienced buy to let landlord, our client was sourcing an owner-occupier mortgage in order to swap rent for a mortgage, and to start a new business within the same premises. They were also looking to diversify their property portfolio with commercial investments.
A semi-commercial property located on the outskirts of the capital, it consisted of a commercial retail unit on the ground floor, and residential flats in the basement and first floor. Rent from the flats would sufficiently cover the mortgage repayments for the whole building.
Our client required a 70% LTV commercial owner-occupier mortgage to secure the property. This would allow them to save profits by stopping paying rent and benefit from the additional income from the residential units.
The Challenge:
The primary challenge with this case was that whilst the existing owner had converted the property to include the residential units, they had not acquired the necessary consent for the residential dwellings. As such, our client would not be able to let out the flats until they obtained this consent, which caused a potential issue of proving how the mortgage repayments would be made.
The second challenge with this case was that our client was hoping to start a new trading business from the premises. Lenders typically prefer to deal with an established business, with a minimum of two years of financial accounts to evidence a profitable trading position. This could have been a contentious issue for lenders and made sourcing finance difficult.
The Solution:
With our experience in the commercial mortgage market, we quickly identified the best approach to the challenges faced. As our client had an existing, successful trading company, we were able to evidence this as the anchor tenant of the property. As such, the current and historical accounts were sufficient evidence that the profits would cover the mortgage payments, regardless of the uncertainty with the new trading business and the inability to let the flats. This allowed us to source an owner-occupier mortgage and a more affordable rate.
Having sourced an appropriate lender and competitive rate, we utilised our knowledge and experience to liaise about the consent for the residential units. It was agreed that the lender would delay completion to give our client time to seek the necessary consent for the flats, so they could be let out immediately upon completion. Satisfied with the arrangement, we closed the deal.
Here are the details:
The Finance:
Property values: £700,000
Loan amount: £490,000
LTV: 70%
Rate: 5.39%, 5-year fixed
Term: 25 years, interest-only
Mortgage payment: £2200 per calendar month
Lender arrangement fee: 2% added to loan (£9,800)
Application: SPV Limited Company
Next steps
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