United Trust Bank’s Structured Finance department was created to provide bespoke financial solutions for sophisticated investors and developers often with complex portfolios, ownership structures or unusual requirements.
Earlier this year the Bank was approached by a successful businessman and property investor wishing to refinance a £2.5m loan secured against his current home, a substantial Grade II listed manor house with 7 acres of grounds. The client had recently completed a £1m renovation of the property and had been presented with an opportunity to let out his attractive home on a two year assured shorthold tenancy, generating rental income in excess of £450,000 over that period.
The client’s existing facility was about to expire and the lender had confirmed that they would not allow the businessman to let his home whilst they held a charge over the property. Subsequently, if he wished to pursue the lucrative letting opportunity he would need to quickly refinance the facility with a more flexible lender.
The market for larger multi-million pound properties has been adversely affected by factors such as the changes to Stamp Duty Land Tax at the start of 2016 and the UK’s decision to leave the EU. This has manifested in a cooling of activity in the sector with properties taking longer to sell and sometimes at more conservative prices. This has also had a knock on effect for the financing of said properties. However, rather than using that as reason to decline the proposal, UTB instead sought to mitigate their risk by examining the viability of several possible exits and alternative sources of income for the borrower.
The businessman was a serial property entrepreneur, successfully buying and selling various properties around North London for a number of years and has built up a portfolio of properties and land valued in excess of £10m. These include a 5-bedroom house, formerly let but with interest from a purchaser at a price over £2m, and a parcel of potential development land which, if planning is successful, would increase its value from £1m to around £6m.
UTB’s Structured Finance team quickly appraised the client’s situation, both in terms of his property portfolio and business interests, and established that the principal exit, that of a buy-to-let mortgage, was feasible. There was also the possibility that the loan balance could be reduced by around £1m if the sale of the 5-bedroom house went ahead. However, this aside, they were also able to provide additional assurance to the Bank’s Credit Committee that there was considerable scope for further equity to be released from the borrower’s other properties if required or, if necessary, one or more of them could be sold.
With due diligence swiftly completed, UTB was able to refinance the full amount required by the client and enable the letting of the manor house to proceed.
Gerard Morgan Jackson, Head of Structured Finance, commented:
“There have been strong signs recently that many lenders with established Structured Finance divisions have reduced their appetite for larger and more esoteric funding requests. Whether it’s uncertainty about the UK economy and property market due to Brexit or other pressures and concerns, is unclear. However, the word from several brokers and borrowers active in the sector is that proposals which would once have sailed through credit are being declined or agreed subject to rather onerous conditions. This has led to clients, even those with a substantial history with the lender, having to look elsewhere for funding, often at short notice.
“At UTB we possess the skills to cater for the needs of borrowers with often complex requirements and circumstances and we have a willingness to look at proposals holistically. By taking a commercial view based on a quick but thorough appraisal of the situation we provide bespoke solutions which fulfil even the most challenging criteria.”