Arranging £7.5 million through dry lending for foreign national clients

Article by Andrew Chalton Private Client Director

The situation?

We were approached by an extremely wealthy foreign national couple who had accumulated most of their asset base prior to arriving in the UK. They were residents of the UK, but domiciled in the US with one major asset in the UK being an unencumbered prime central London townhouse.

Due to a change in personal circumstance, my clients were in search of another property in prime central London for owner occupied use. Upon finding it, an offer was agreed at just under £4.5m, but speed was of the essence. Their intention was to use their existing home as security against the property being purchased, alongside carrying out various some light renovations.

The clients offshore bank was unable to assist with the loan conditions they required. Therefore suggested they speak with LDN Private Clients given our proven track record of supporting previous similar projects.

The solution?

This case was complex because despite the clients being UK residents, they were foreign nationals who were holding their wealth in overseas investment accounts. The issue was not so much that they couldn’t prove their wealth for the property purchase, but instead they had been advised by a recommended tax specialist that they could face significant tax liabilities by remitting funds onshore.

Given the time sensitivity around closing the purchase, we needed to devise a competitive solution that could be processed swiftly.

An additional quirk to this proposal was that whilst the clients had previously held executive positions, they were no longer working and therefore relied on overseas investment income and capital gains. Whilst the level of incomes being received were not insignificant, they were not at the level that would typically be required to service a £7.5m mortgage facility.

Given that most traditional banks have regulatory requirements to evidence standard income, ideally GBP denominated, this also presented a challenge due to satisfying lenders’ stringent affordability calculations.

In order to raise the capital needed for the purchase and home improvements, we needed to source a facility with a bank that could offer competitive terms in respect of interest rate and fees. It was also ideal to find a lender who wouldn’t require our clients to place any assets under management to begin a new relationship.

The key was to show sufficient liquidity in the UK to be able to service the new mortgages. To support this, we provided clear demonstration of the clients wider asset position overseas, and their ability to easily draw upon these assets as a contingency should they ever be required.

The deal involved raising funds from the clients existing home swiftly to allow the exchange of contracts to take place on their onward purchase. In doing so, we could then raise a smaller mortgage against the new purchase to ensure the clients had some liquidity set aside to fund the necessary home improvements.

By utilising new debt, we helped the clients avoid remitting funds onshore creating a significant tax liability.

Overall, we were able to secure a bespoke facility that included raising debt against both the borrowers current UK home, and partly against the property being purchased. The debt was sourced on a part-fixed part-variable margin with the former priced in at 1.84% and the latter at 1.39% plus Bank of England base rate.

The facility was structured on a dry lending basis meaning the bank was happy to lend without expecting any wider relationship on day 1.

In arranging this facility, we were able to move quickly in sourcing a lender that could deliver and ensure the borrowers could complete on their new property purchase.

The clients were thrilled with the solution LDN Private Clients created for them, and this has also further strengthened our relationship with the overseas private bank that was unable to assist, paving the way for similar opportunities to support them in the future.

Dry Lending