Last month we were contacted by a retired gentleman looking for advice.
James started off by telling us that he was 71 years old and knew that, due to his age, he would be barred from taking out a Holiday let Mortgage. At this point, we told him that assuming age was an automatic bar to obtaining a Holiday Let Mortgage was being needlessly pessimistic. Dependent on his overall circumstances, his age was not a bar and a Holiday Let Mortgage could be available.
James then said that actually he didn’t want a mortgage!
However he wanted to run a scenario past us which involved his wife and multiple Holiday Let Mortgages.
He went on to say that his wife was 47 years old, a homeowner, but currently not employed and with no intention of returning to work. We asked when she last worked and he said “Twenty years ago”.
James said that they had contacted other lenders and they had asked similar questions. When they heard that Mrs was a non-earning spouse, they had all said “no“.
In reply to James we said that it is now quite well known that the standard lender products have basic eligibility criteria which include minimum acceptable income levels.
“Do products exist that are not standard, and cannot be found on such systems”, asked James.
Our reply was both no and yes! No the products don’t exist, until an applicant requests one. By this we meant that we have access to lenders that underwrite each case on its merits and produce individual terms and conditions and interest rates that differ with each case.
James said that this type of lending reminded him of the days when you would go into a bank, see a “Captain Mainwaring” type character and be interviewed for a loan.
“Isn’t this type of lending dead, what with call centres and all?” he added.
Our reply was “No, it’s very much alive and kicking here. This is why we exist- to add value.”
James told us that he wanted to build a small portfolio of four Holiday Lets for his wife, at a cost of around £250K each, in Perthshire, with his wife as legal owner. He said that the deposits would be gifted, by him, to his wife.
We then asked James, if he still worked. He replied that he did, however not that hard!
He went on to say that he was a 20% shareholder in an engineering business that he had founded 40 years earlier, the reduced shareholding, being the result of a divorce.
He told us that his income consisted of dividends of £36K per years, plus £3,500 net from a private pension. In addition, he said that he received rents from an unencumbered property portfolio, consisting of commercial property and a couple of buy to let flats in Edinburgh.
We thought at this point it might be prudent to ask James what his approximate net worth was; he said about £3 million.
Now of course, this was a little like music to our ears, as we could see all sorts of clever ways to help James achieve his objectives.
We told James that we would e-mail him a pro forma, Assets/Liabilities statement and a Portfolio Statement for him to complete, so that we could better understand his overall financial position.
In addition, as James had not identified the target properties, we said that it was important that a firm written Decision in Principle be sought at the earliest opportunity, in order that when he/they did find a suitable property, the Estate Agent would recommend their offer.
James said that he would have his accountant complete and return this to us the same day; which he duly did.
On looking at the portfolio statement, we could see that there was plenty of identifiable and readily saleable residential security available; in three unencumbered buy to let rental flats, located in Edinburgh; value circa £1.5M, which could give any lender comfort. In addition, we noticed that there was a Joint Life endowment, maturing in 2015 with a sum assured of 250K; current valuation 170K.
We e-mailed James, thanking him for his speedy response, informing him that we would take the information to one of our lending partners, in order to discuss the best way forward.
As it was James’s plan, to have his wife hold around 4 Holiday Let properties, Holiday Let Mortgages needed to pre agree a long term, “in principle”, facility.
After careful consideration, we spoke to James and said that there were a couple of ways that we could structure and propose his Holiday Let Mortgage deal; depending on the level of commitment that he felt comfortable with.
Our proposed Plan 1 consisted of a simple guarantor deal, where James would act as guarantor on the deal and put up 50% deposit.
James said that he would not discount the deal immediately; however it could lead to a rethink in terms of portfolio size, as he had budgeted for 30-35%.
We explained that as Mrs was non-earning and, in effect, the “Holiday Let Business” was a start up, run by an inexperienced proprietor; the lender would be cautious.
We could see that in fact, our Plan 1 could be a deal breaker, so up came up with a more client friendly deal.
Our Plan 2 consisted of a third party security situation, meaning that the lender would take a first charge over James’s Edinburgh flats, for security, and a guarantor agreement, tying in a portion of the Edinburgh flat’s rental income, for debt servicing ; if necessary. We said that in our experience, the lender would only require, about 15% -20% cash as “hurt money” and may even take secondary security only.
James said that our Plan 2 was just what he was looking for and would allow the purchase of four properties, which was their original intention in terms of risk and reward. He immediately asked us to forward the necessary paperwork, in order to obtain a Holiday Let Mortgage, Decision in Principle.
Our lender came back to us with a written agreement, within 48 hours, based on our plan 2, with minimal cash into the deal.
Delighted, James is now out in the market, looking for a property bargain, that he can prove can be moved forward quickly, thus meeting vendor and Estate Agent’s expectations.