At Holiday Let Mortgages, we are involved in all areas of commercial holiday let finance and mortgages, including scenarios labelled by lenders as “complex”.
The term “complex holiday let mortgages” covers a wide variety of area of circumstances.
In this case study, we are going to tell you about a customer we managed to help who was in the unfortunate situation of being stuck on bridging finance, with no long term exit available and a bridging lender that was refusing to roll-on the commercial bridging facility once the original loan period had expired.
As usual, this is a real case study, based on work that we have done for our customers; some changes to names, locations, minor tweaks to figures to preserve anonymity.
If you are in a similar financial situation to the customer in this case study, even if your usual mortgage broker has told you that you have no option but sale, pick up the phone to us and just have a conversation.
It will cost you nothing and might turn a loss of profit, or worse, into a beneficial long-term financial gain.
Mr H’s case
A few months ago, we received a new enquiry from Mr H who really needed our help…and quickly.
Managing to secure a large plot of land, overlooking the sea on the Cornish coast, Mr H had gone on to obtain planning permission to build 7 flats, 6 being restricted to holiday let use only.
He had completed the build successfully with the aid of a 24-month development bridging loan.
Including roll-up of interest on the bridge, the loan stood at £2.5M, on a completed value of £5.8M. The cost of the bridge had been 1.0% per month, reflecting the fact that it was effectively a green-field development and that planning permission restricted usage.
As the plan was to build and retain the holiday let development because the projected income was very attractive, Mr H had had a conversation with the mortgage department within the firm for whom he worked, before commencing the build. They had told him not to worry about a long-term commercial holiday let mortgage, telling him that because the final LTV was sub 50%, the case would be straightforward.
Following completion of the build, he had gone back to his firm’s mortgage dept, requesting that they find him a holiday let mortgage as his “exit” from the bridging loan.
After making exhaustive enquiries, their initial optimism proved to be unfounded and a bridge exit to a long-term mortgage was blocked. The lenders disliked the restricted holiday let planning permission. However, being new, it had no track record of income and they would not rely on a projections to service loan as large as £2.5M. Some evidence of income stream was required, although it did not necessarily have to be as formal accounts.
Mr H said that he had then called his bridging lender, hoping that they would roll the loan for a further term, but this was declined.
At this point, he called us.
Norman, one of our Directors and a specialist in this field, already knew that a fully serviced loan of £2.5M, projection driven, would never have been available, and was able to explain in more detail to Mr H the reasons. He told Mr H that in 2 years, when accounts would doubtless be available, he would no longer be seen as a start-up business, lenders would see that the business could support itself and loans would be forthcoming from some holiday let lenders. He did add that because the loan was so large, the choices of lender would be limited but nonetheless possible
What Mr H needed, Norman said, was a loan to tide himself over that two-year period. However, this wasn’t quite as straightforward as it sounded. Norman did some quick calculations and it was evident that pure gross roll-up was not an option because it would have meant that the loan plus rolled-up interest would exceed a lenders maximum permitted LTV. What he suggested was that the loan be split into two components:
- An amount which could be allowed on a gross roll up basis
- A secondary amount which would be serviced monthly
Norman checked the loan size at which lenders were happy to consider projections for the monthly servicing. He did some deft calculations and it became evident that £1.2M could be allowed on gross roll-up, leaving the secondary amount at a level much lower of £1.3M, and now at a level that lenders would accept projections
The two parts of the loan were at slightly different interest rates, so by a few more simple calculations, Norman maximised the part of the loan which would be at the lower interest rate.
Not only did Mr H now have a way of getting over the next 2 years, but even if he had been able to obtain the whole loan on a monthly serviced basis, the monthly cost would have put him under pressure. After all he was only a start-up business basis and although the projections were strong, they had yet to be achieved. But by having only just over half the total loan needing to be serviced, it removed that pressure and gave Mr H some very welcome cash flow.
The case completed 3 weeks ago