Securing a Bespoke £2.4 million Remortgage Using Carried Interest
The situation?
A very successful private equity partner approached us with a few weeks left to run on their fixed rate mortgage with their existing private bank. They were looking to understand if the wider market could beat what was being offered by their existing lender, as the proposed interest expense was due to treble.
The property was a large estate including a manor house with significant, complex land including various covenants that would need to be considered alongside the main application.
The client had significant income but – as is standard for private equity individuals – most of their compensation was earned through carried interest paid over future years. In this case, the client’s portfolio and expected future earnings were substantial.
Despite the client’s large income, they also had comparatively large expenditure including school fees, separate nanny fees and lifestyle costs. This hindered our affordability when using salary and bonus alone. While the private banks are very comfortable with carried interest, high-street banks have previously been unable to consider this meaning a simple remortgage would likely not cover the loan required. Further to this, we had very limited time to get through application to offer, and finally completion.
Working with the client we reviewed their entire wealth and expenditure profile holistically, to understand that their lifestyle was indeed affordable when factoring in future earnings including the carried interest anticipated. These earnings would also be used to pay off the outstanding facility in the coming years.
Utilising my knowledge of private equity remuneration, lender appetites and underwriter relationships, we spoke to a number of the market’s leading large loan underwriters to explain the situation and asked them to take a common-sense approach to the client’s wealth profile. Working directly with the underwriter, we convinced the most competitive solution in the market to ringfence the nanny and school fees with expected future earnings, to cover these costs moving forward. Despite the lender being unable to include the portfolio and carried interest towards affordability, this now allowed us to secure the loan required at the market leading rate. This saved the client more than £200,000 over the 5-year fixed we secured compared the comparable product being offer by his private bank.
The solution?
We worked with the underwriters and solicitors simultaneously to cover off all points and move as quickly to completion as possible. We managed to complete on the deadline and avoid the private bank’s very expensive variable rates.
The final loan was secured at £2,400,000 with an LTV of 75% on an largely interest-only basis. This was obtained via a large-loan team at a top high-street lender. The rate was market-leading and more than 150 basis points better than his comparable solution.
The client was astounded at the speed at which this was done, but more so by the bespoke nature of the facility and how we were able to understand their position and explain this to the underwriters to secure the loan outside their standard criteria.