80% LTV on Five Flats Under One Freehold Title
The offer said 80%. What actually landed was just under 71%. Here's where the rest of it went.
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The deal
I had a client come to me wanting to buy five flats. All five sat under one freehold title, so he was buying the block, not five separate properties.
His plan was simple enough on paper, and I liked it. Buy it, do some light works to the flats, split the titles, then refinance each flat on its own onto longer term finance. The whole point was the title split. Five flats on five titles is a very different asset to a fifth of a block, and it's worth more.
So his exit wasn't a sale. It was a refinance, five times over. Hold that thought, because it matters later.
What he wanted
He wanted to borrow as much as he could and keep his own cash back. That's what nearly everyone wants when they ring me, and in his case he'd got a good reason for it. The cash had jobs to do. The refurbishment, and the cost of splitting those titles.
So we structured it at 80% gross. He was buying at £500,000, so that's a £400,000 loan.
The numbers
| Item | Amount |
|---|---|
| Purchase price | £500,000 |
| Estimated value | £500,000 |
| Requested loan | £400,000 |
| Term | 12 months |
| Monthly rate at the time | 0.95% |
| Arrangement fee, added to the facility | £9,000 |
| Gross loan including the fee | £409,000 |
| Retained interest | £46,626 |
| Net day-one advance | £353,374 |
Where the money actually went
When the terms came in I did what I always do, which is net them down before anyone gets excited. Here's the bit worth slowing down on.
What landed was £353,374. So he didn't need £100,000 to complete. He needed £146,626, and that's before stamp duty, before legals, before he'd spent a penny on the works.
The £46,626 that goes missing isn't a trick, and I want to be clear about that. It's the retained interest. Twelve months of interest taken out of the facility on day one instead of being paid monthly, so the loan pays for itself while it runs. Which is handy. But it's your money, you're borrowing it on day one, and it comes out of the same pot you were going to do the works with.
I have this conversation more than any other. 80% gross sounds like 80% of the purchase price turning up as cash. It almost never is. And the higher the loan to value, the wider that gap gets.
Why the exit worked
Remember the five titles. That's what made me comfortable with this one.
If he'd been refinancing one block he'd have needed one lender to say yes to one property. Splitting them meant five separate refinances on five separate flats. If one of them is slow, the others still go. That's a far more forgiving exit than a single sale where you're waiting on one buyer to turn up.
What happened
We got it completed in about 17 working days, legals and all. He got the money, bought the block, and got on with the works and the title split.
If you take one thing from this, take this. Two lenders can both say 80% and put very different amounts in your account. The number that decides whether your project works isn't the headline. It's the net advance, and it's the one you've to ask me for.
Important information
The figures above relate to the particular circumstances and lending terms available at the time of this transaction. Rates, fees, maximum loan to values, loan sizes and lender criteria can change, and the terms available to another borrower may be different.
This case study is provided for general information only and shouldn't be treated as an indication that similar terms or timescales will be available in another case.
Bridging finance is secured lending. Failure to repay a secured loan may result in the lender taking enforcement action against the property or other assets provided as security.
Where a property used as a dwelling is offered as security, additional regulatory risk warnings may apply.
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