Quirky remortgage with additional borrowing
Arranging a remortgage with additional borrowing is situation we help with quite frequently. Some of the more common reasons why people need to borrow more money on their mortgage are:
- Home improvements – new kitchen, bathroom, maybe an extension etc
- Funds to use as a deposit if wanting to buy a rental property
- Debt consolidation – paying off loans, credit cards and store cards that may have high interest rates
However, there are other circumstances where a person may need to take additional borrowing that are more quirky, such as:
- Needing money to buy a business
- Buying some land
- Extending the lease on a leasehold property
Capital raising remortgage for a lease extension
Recently we helped a lady who owns a flat in London. Similarly to most flats in the UK, it is a leasehold property. The outstanding lease term on this flat is 54 years. When a lease expires on a leasehold property, ownership of that property should revert back to the landlord, or freehold owner. Obviously that is not a great situation to be in. This is something that a lot of people who own leasehold properties don’t seem to fully understand, but I will go into that in more detail another time. As you can probably imagine, the longer the term of the lease, the more stable the true value of the property. As a more extreme example, would you buy a flat if it only had say 20 years remaining on the lease? Or would you feel better if the lease was 150 years?
Niche remortgage – complex situation
Mortgage lenders typically have a requirement around how long is left on the term of a lease. This also varies between lenders. If the lease is too short it can make it very difficult to get a mortgage at all. Ultimately, the longer the lease the better. In this particular situation, based on the value of similar properties, this flat could have been worth between £425,000 – £450,000 if it had a longer lease. However, due to the lease being only 54 years, it meant the valuation was reduced to around £355,000. As mentioned above, the shorter lease effectively devalues the property. It would be very hard for any potential buyer to get a mortgage on that property currently. With the lease being so short it makes it much less desirable to any buyers.
So, what did we do?
This lady had agreed a fee with the landlord to extend the lease on the property by 90 years, taking the new lease term up to 144 year. As you can probably imagine, this suddenly makes that property a much more attractive proposition, and in turn should make it more valuable again. The price for this lease extension was agreed at £65,000 plus legal costs. That may sound like a huge amount of money, and it is. However, that should increase the property value dramatically with the projected increase being well beyond that cost. Therefore, economically it’s the right thing to do.
The predicament the lady was faced with was that she simply didn’t have the money required to execute this lease extension. Also, as we have already mentioned, most mortgage lenders would not accept an application for a mortgage on that property so the situation was looking a bit bleak.
The Solution – additional borrowing remortgage
Enter Fifty Nine Financial!
We found a mortgage lender that would allow the client to remortgage and take additional borrowing to cover the costs of extending the lease. The quirky part was have to negotiate with the lender because the existing 54 year lease term did not fit with their lending criteria when it comes to new mortgage applications.
Throughout conversations with the lender, we were able to establish a position where the lender would except the application. This was on the basis that there is to be a simultaneous completion, whereby the lender allows the client to take the additional borrowing on the condition that they extend the lease on the day that the mortgage completes. That way, the lender is actually lending against a property with a 144 year lease, not 54 years. In the end, this was the scenario we needed and, although it was far from straightforward, we were able to secure a mortgage offer for this client so she will have the funds required to extend the lease.
We specialise in finding solutions to complicated situations. Sometimes the solution itself is quite simple. Knowing how to do it is the tricky part. That’s where we can help. “when the world looks left, it could be time to look right…”
As mentioned above, there are many times when additional borrowing may be required on a remortgage. We can often find a solution where others can’t.