There is no denying that the Covid lockdown had us yearning for more space, be it more room for living indoors or more green space outside. This was very much the case for a recent client, a young private equity professional, who was looking to upsize and purchase a larger home for their growing family following the lockdown release.
With a baby on the way, our client was eager to sell their current two-bedroom flat in the City and purchase a £3.25 million Victorian terrace house in South West London with more space and a luscious garden. Their ideal was to secure a 75% loan-to-value (LTV) interest-only mortgage, with a borrowing of just under £2.5 million.
The main issue for the client was that they didn’t quite fit in the tick boxes when it came to satisfying traditional affordability checks set by most lenders.
Although they earned a considerable salary with a generous bonus structure, the borrowing amount was still out of reach. Whilst this would no longer be the case in the next few years, they continued to build their career. Their circumstances – namely the new baby and post-COVID climate – had triggered more of an urgent requirement for them to move their family, sooner rather than later.
As such, the private client team knew we needed to use our knowledge of the private equity space to explore the client’s full wealth picture and earning streams to help structure a facility that would reflect their full income makeup.
Fortunately for the client, we are well-versed when it comes to securing complex mortgages for those working in the private equity space. Having worked with a vast number of private equity borrowers in the past, we know exactly where to go and which trusted lenders within our network will understand the more complex nature of private equity income streams. Ultimately, this means the process moves forward a lot more quickly without the hassle for clients.
We knew the client’s income would include what’s known as ‘carried interest’, i.e. a share of any profits that the general partners of private equity receive upon completion of investment deals. This forms part of their total compensation package and is typically in the form of shares, either over the coming years or can be taken as a cash lump sum payment.
After some investigation of our client’s finances, it became clear that their funds had performed well over the previous 18 months resulting in an additional £700,000 being added to their compensation package.
Because of the anticipation and trajectory of the client’s line of work, and with the value of the carried interest that had been paid out in the last year and a half, we were able to source a trusted lender that was happy to work off these figures. This allowed the lender to look at an affordability model based upon his historic carried interest as well as the client’s future vested shares potential, rather than his standard income alone.
Working closely with the lender, we were able to secure this rather quirky deal over a five-year interest-only mortgage basis on a variable rate of 2% over the Bank of England base rate, with a 1% arrangement fee.
Further to this, we negotiated the facility with no early repayment charges (ERCs). This suited my client perfectly as it meant they could borrow more on day one to get the deal over the line, but it also allowed the client the option to aggressively pay down the loan and reduce his overall debt exposure when they receive any supplementary income.
Interest Only Mortgage Lending