Large interest-only loan for UHNW entrepreneur client, upsizing family home

Article by Andrew Chalton Private Client Director

The situation?

We were recently approached by an ultra high net worth (UHNW) entrepreneur client looking to borrow over £5 million on £8 million for their new family home in Jersey. The client wanted to relocate and upsize their primary residence, but retain their existing property in London for use when returning to the England. Given Jersey is a more tax efficient location, the client wanted to develop their yet-to-make-profit start-up company from there, as opposed to London.

As the new business was yet to make a profit, we were presented with a few difficulties upon inspection. Despite their UHNW status, we had to present their complex case in a way that would provide the lender with confidence in our clients financial position. To do this, we explained that their prospective business plan posed the client as a more than reliable client for their required loan.

There was a lot of investment for the business and a lot of people with high profiles were backing the brand but, the client’s income did not pass the standard assessment. As such, securing this large loan required a more creative approach form the private clients team.

The challenge encountered was that we needed to get a lender to take a view on the overall business profile and plan including strategies, who is involved and the projections and forecasts of the business. We needed to not only lean on the high profile background of the client, but also the trajectory and potential of the business, including who is around it and who is investing in it.

The solution?

Due to the particular nature of this clients circumstance, we endured a fairly extensive exploration process. To get a lender to allow for this creative strategy towards securing the loan, we had to  approach a newly launched private bank. Despite this particular setup not being something advertised by many banks – including the chosen lender – our  close relationship with the bank successfully gave us an inroad to complete this more complex deal with them.

To secure this facility, we largely relied upon the business prospects and early stage growth, as well as the family trust in the background. Even though we were not going to offer anything up from the family trust as collateral, the extremely high level of wealth, investments and properties within my UHNW client’s family company proved a worthy demonstration of exactly the type of client we were bringing to the table.

To overcome the standard affordability calculations, we put some interest on account. This demonstrated that the client was able to service the loan over the years. However, to tackle the issue surrounding their business in it’s infancy and lack of his initial income, we requested the client frontload five years’ worth of interest payments. This gave the lender comfort and confidence that they would receive payments for that duration, wherever the client’s future financial circumstances led to.

Overall, we successfully secured a £5.5 million mortgage on a five-year fully interest-only deal, with a five-year fix rate at around 2.00%. The fantastically affordable arrangement fee with the chosen Jersey-based lender was only £5,000 and as a result, the client was overjoyed with this incredibly bespoke agreement.

Interest Only Mortgage Criteria