Our client was looking to purchase a new property for £2.9m. They required a 75% (£2.175m) residential mortgage on the new property and a £675k Buy to Let (BTL) loan on their current residence. The client’s taxable income was not sufficient to carry a loan of more than £1m under most lender’s criteria. In addition, the maximum BTL loan available from most banks would be capped at £350k.
We were able to secure the full £2.85m required through a residential loan which was based on the client’s share of retained profits within his companies. A let to buy mortgage was secured using the client’s personal income to “top slice” the rental shortfall on the property.
The client was the major shareholder in a group of subsidiary companies. Some of the companies had only been trading for just over 12 months (most banks require a 36-month trading history). Typically, banks will only lend based on a client’s director’s salary and dividends.
A handful of banks can consider lending against the applicant’s share of profits but only where the client holds a majority (51%+) shareholding. The client had recently secured the controlling shareholding in the group. However, most banks would want to see at least a 12-month trading history under the new company structure before they could consider a loan.
The client wished to raise a £675k Buy to Let Mortgage on his current residence which was worth £900k. The main issue that we faced was that most banks could only offer a BTL loan of £350k as under PRA regulations the rent of £2,300 per month had to cover 145% of the interest payments at a sensitised rate of 5.5%. Put simply this would limit the maximum loan to £350k.
We approached a major high street bank with a business case supported by the client’s accountants. We demonstrated that the revised shareholding had a positive impact on the client’s companies.
We provided forecasts of the groups projected profits and the bank was happy to lend based on a 2-year average of the group’s profit at the client’s current shareholding level (rather than the shareholding he held during this period).
The bank was also willing to use the client’s full share of profits to “top slice” the rental shortfall. That is where the client’s surplus personal income is added to the rental income to satisfy the PRA capital raising rules.
“We were able to secure the full £2.85m required through a residential loan which was based on the client’s share of retained profits within his companies.” – Brian O’Neill
The two loans were secured on competitive fixed rates on interest only. The client effectively secured 100 funding and was delighted to secure their dream home.