£5.5 million property acquisition for business owner looking to make use of latest years trading figures
The situation?
Our client, a first-time buyer, approached us for help in securing a high-value facility for a stunning 5-bed Victorian townhouse in Chelsea. With the purchase price agreed at just over £5.5 million, the client was keen to secure a loan of c£4.1 million. The client also wanted to complete their purchase within 6 weeks which added a time pressure to the deal.
The first obstacle we had to overcome was regarding the client’s income. The client is a company director. Typically 2 years of trading accounts are the minimum expectation to evidence income sustainability, and most lenders would consider an average across this period for their assessment. In these circumstances, however, my client was making real advances in the media world and in turn was demonstrating a substantial increase in profits in year 2 and therefore was looking to base their borrowing capabilities on this larger year’s income.
The first year of accounts were focusing on getting the brand launched and internal processes up and running which meant profits and personal drawings were modest. In contrast, the second year was significantly more profitable despite again relatively minimal personal drawings. Not only do most lenders typically base borrowing on a 2-year average, but they will also generally look to a borrower’s personal salary & dividend drawings when forming their underwriting assessment. Given the business was still in its infancy stage, my client had opted to hold back profits for further business investment in favour of enhancing their personal income. This would normally restrict borrowing potential.
A requirement to both lend on the latest years trading figures, rather than an average, coupled with an affordability assessment based on the business profits in favour of personal salary & drawings would often be hit with a stumbling block across most lenders. However, with our extensive experience in sourcing bespoke facilities, we knew exactly what we needed to do to help get this deal over the line.
The solution?
To deliver a solution, we explored conversations with the large loan divisions of a couple of banks whom we have long-standing relationships with. We were able to discuss the case with a pre-underwriting team, before submitting it to avoid any time being wasted.
When presenting this case to the lenders, it was important that we demonstrated a full analysis breakdown of the client’s 2 years’ trading figures, with a supporting reference letter from their accountant coupled with management accounts for the 3rd year and ongoing projections. The success of this deal was always going to be hinged on the level of detail provided to support the underlying client’s profile and demonstration of the positive trajectory of their business model.
We were delighted to deliver a mortgage offer to the client within 2.5 weeks. This ensured completion took place within the 6 weeks as agreed, all the while managing relationships with the bank, the client’s accountant, surveyors and lawyers in the background.
The agreed facility was a 5-year fixed rate on a part capital repayment, part interest-only basis at 75% LTV. Being able to secure this deal via a leading mainstream bank was particularly lucrative to our client as we were able to close with minimal fees involved (£2k), as opposed to what could have surpassed £40k+ if an alternative route was chosen.
Securing this facility allowed our client to meet the vendor’s tight deadlines and purchase their dream first home. The price agreed was in fact slightly discounted on the premise that the time pressures could be overcome. We were able to meet those requests which left my client feeling delighted!