£3.3M Remortgage of Large Multi-Unit Portfolio at Highest-Possible LTV

Multi-unit properties are described by many property pundits as "difficult to finance", despite their rental returns competing with HMOs (houses in multiple occupation) for top spot in the rental yield tables. We found the finance our landlord needed - at excellent terms. 

The Situation

Our client combines running a major agricultural estate with being a professional landlord.

He has a substantial portfolio of 24 residential rental properties on the south coast, ranging from family homes to multi-unit freehold properties (MUFHs), valued at approximately £10M.

His current lender, a private bank, had a capital-repayment mortgage on the entire portfolio. He wanted to refinance away, releasing capital to fund further investments.

The Solution

Our strategy was to focus on getting finance against the six most problematic – but profitable – properties in his portfolio: large multi-unit freehold properties earning a handsome £400K annual rental return.

This would leave the remainder of his portfolio, valued at approximately £5M, unencumbered and available to our client to arrange "vanilla" lending against, at high street rates.

Multi-unit properties are described by many property finance pundits as "difficult to finance," despite their rental returns competing with HMOs (houses in multiple occupation) for top spot in the rental yield tables.

Most buy-to-let lenders are comfortable with smaller rental properties that will easily find investor or homeowner buyers in the case of a foreclosure.

Those who will lend on MUFHs at this kind of loan size will only go to a maximum 60% LTV because of perceived problems in realising the value of the property in the event of a firesale.

(The number of investors who could buy a property of this size at short notice is limited. A lender might manage to sell off a proportion of the studio and one-bedroom units, but might also have to consider building works to knock some of the units together to make larger flats.)

As a result, most high-street banks who do MUFH lending won’t consider more than four units on one title.

A number of challenger banks will consider up to 6, 8 or 10 units on one title. The number of lenders who will consider more than 10 combined units is extremely limited.

Our client’s six multi-unit properties included substantial converted buildings of a size that are quite common on the south coast: ex boarding houses and small hotels. The four largest properties had 12, 18, 20 and 23 units in them.

We took our client’s sub-portfolio to an entrepreneurial challenger bank we have done a lot of business with. We know that they tend to be less focused on bricks-and mortar value than the rental returns of this type of property.

With a little persuasion they were prepared to extend their lending to 75% LTV, giving our client the £2.5M he needed to pay off his previous lender, plus £800K he wanted to spend on his next investment opportunity.

We arranged the lending on an interest-only basis so the combined mortgage on the six properties is now costing our client a little over £11K a month: amply covered by the rental returns.

Comparing the rates for 2-year and 10-year fixes from this lender, the difference of 0.15% wasn’t significant enough to deter him from going for the longest fixed term, saving on refinance fees. Although he plans to hold onto these properties long-term, should he wish to sell any of them there are only ERCs for the first five years.

This was a fairly complex deal to set up in terms of arranging valuations, but once they were in hand it took us just two weeks to get the offer to completion. Our client had £800K to take to an auction the following day, and a clear £5M-worth of property free to arrange further finance against.

Read our blog on multi-unit properties