Couple takes £400k second mortgage to fund conversion, without having to raid their pension pot
A couple wanted to borrow £400,000 to convert outbuildings at their property to increase its value so they could sell the property and make an enhanced return.
They had an interest-only mortgage on their home that was due to expire at the end of the year and planned to increase the value of the property before putting it on the market.
The couple benefited from owning significant additional assets, including a portfolio of three properties worth around £650,000 in total, which generated roughly £50,000 of income a year. Their joint income was around £110,000 a year and they also received a further monthly income from a self-invested personal pension (SIPP).
Despite this, they faced considerable difficulties trying to borrow the £400,000 needed for the conversion work, partly because of their age. High Street lenders were unwilling to provide a mortgage facility that extended beyond the official age of retirement.
The fact their mortgage was an interest-only facility only added to their problems in getting a loan - despite them being experienced in the property market and taking a common sense approach throughout.
The main challenge for them was that lenders simply didn’t accept the plan to sell the property as an effective exit strategy for the interest-only mortgage.
Frustrated, they considered drawing down the £400,000 from their pension pot. This, however, would have been taxable at 40 per cent – bringing a significant financial hit at the worst possible time.
The couple's advisors, an organisation that deals with the banking and tax affairs of high-net-worth individuals, had explored all High Street options. When they came to us, having been referred by a fellow financial professional who had enjoyed exceptional service from Loan.co.uk, we explored bridging finance as an option. Due to a restrictive Loan to Value position and the costs associated with the bridging finance in this instance, it was not the best option.
Our second mortgage lending panel, however, was willing to look beyond the age of retirement, provided there was sufficient income and a clear plan. Looking into the detail of the case it was a matter of common sense that the couple had a very clear strategy and the financial and business acumen to execute on their plan.
From the outset, our team recognised three things that gave us confidence.
Firstly, The Loan to Value on the case, whilst restrictive for bridging was still attractive to a second mortgage lender.
Secondly, the customer had an impeccable repayment record, which suggested that they had the financial astuteness to manage their financial affairs well.
And thirdly, the couple had a substantial income and although it came from multiple sources, it was provable through accounts and their end-of-year self-assessment tax return (SA302). One of the many advantages of using our lender panel was that the simple provision of the end-of-year tax return was sufficient to prove income.
Our experts could also see that much of the income the couple enjoyed came from their business interests and would not necessarily be affected by retirement - something the High Street lenders had been unwilling or unable to contemplate.
Throughout the process our underwriting team worked closely with the introducers firm to deliver a solution that met the financial needs of the couple.
The final borrowing agreement represented a huge saving on the losses they would have incurred by releasing capital from their pension pot.
Whilst it was a complex case, we worked with the customer throughout the process, providing transparency and information that enabled them to make an informed choice on their spending needs. Both the customer and intermediary partner were delighted with the outcome and their experience of dealing with Loan.co.uk.