Large mortgage case studies from the experts

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Friday January 28, 2011

Another large mortgage loan placed

Welcome to our regular case study update. This case demonstrates the importance of having well-established relationships with the whole private banking market. To discuss this or any other large mortgage case, please contact us.

The proposition

A London broker encountered a problem with an existing private bank relationship when his client was asked to repay a £1.6 million commercial development loan. Only by referring the case to was he able to find a solution from the whole of the market. Different private banks have varying appetites for different types of lending and it pays to ‘shop around’ when dealing with large mortgage loans.

Case profile

The broker’s client was a 40 year old businessman who owns and runs small private schools and halls of residence. Through his company, he borrowed £1.6 million from a leading UK bank to refurbish a property in central London, which he had originally bought for £1.2 million and which is now worth £3.5 million.

Being a short term commercial loan, the bank’s corporate banking division wanted the money back and directed the broker and his client to their private bank to arrange longer term finance. However, the private bank would offer only £1 million on a 5 year interest only basis, wanting a £600,000 cash injection from the client. The client did not have £600,000 in cash, nor did he have investable assets, having £7 million tied up in a portfolio of properties which he did not wish to sell. He needed to find a private bank that would lend £1.6 million on £3.5 million (46% LTV).

The solution

When’s expert mortgage brokers interviewed the client, they realised that there was an added complication. Although the client’s company had made a profit of £360,000 in the last tax year, significant losses had been made in the year before, leading several private banks to decline the deal on grounds of affordability. pored over four sets of accounts and realised that the loss was due to a combination of depreciation and amortisation expenses – i.e. non-cash entries. The client had also transferred funds from a wound-up company to another of his companies – a one-off expense of £1 million. An explanatory letter was written to explain the circumstances to an international bank which is known to favour clients involved in the education sector.

Deal highlights

The best deal for the £1.6 million interest-only 5 year loan on a £3.5 million property was 2.25% over 3 month LIBOR (i.e. just over 3%) and a 1% arrangement fee.

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