Our client had the opportunity to buy 3 flats in a block of 10 in South East London. He wished to buy them in the name of a limited company, and he felt that he could greatly increase the rental yield on the flats by renovating them.
The main issue was that, due to the relatively low yield on the flats at the time of application, most banks could only consider a 60% loan of £840k. We needed to explore ways to increase the loan percentage.
We had previously arranged a £980k loan on a £3m townhouse owned by the client’s company. We approached the banks which held the charge over the townhouse and asked that they cross-collateralise this loan with the new borrowing. This gave the new loan over £2m of equity, reducing the overall loan to value ratio, and therefore reducing the rate we could secure.
“The new loan funded nearly 80% of the purchase price, and our client was able to increase the rental received on each of the flats”
The client had recently transferred an unencumbered property held in his personal name over to his limited company for a nil value. In this scenario, the bank would usually not allow capital to raise against the newly acquired property for 6 months. Following our negotiation, the bank was happy to waive the 6-month rule for our client.
Finally, during the course of the application, the commercial unit underneath the flats was leased by a restaurant. This caused concern, as few banks are happy to lend above food outlets. However, due to the location and the resale value, the bank was happy to offer a loan.
We were able to secure £1.1m for our client, allowing him to purchase the properties at a rate of 2.99% over the bank base rate. The new loan funded nearly 80% of the purchase price, and our client was able to increase the rental received on each of the flats. He is currently in negotiation to buy another 4 flats in the block.
