London property in Greenwich

28 Dec 2019

Case study: Can Investec close the case on law partner's complex BTL remortgage?

Investec Mortgage Intermediaries Team

For many lawyers, making partner at a top international firm shows they have reached the peak of their profession. Partners usually enjoy more influence over the firm’s strategic direction, greater prestige and may have an equity stake in the business.

They can also expect a significant increase in their lifetime earnings. For example, Magic Circle firms Linklaters and Allen & Overy both announced that profit per equity partner, or PEP, hit nearly £1.7 million in 2019.

The word 'lifetime' is important, however; lawyers may have less earnings and disposable income in their early years as a partner than they did as associates. Many firms use a 'lockstep' partnership pay system, which distributes a lower share of profits to junior partners. Firms may also require new partners to pay sizeable upfront capital contributions. For both junior and senior partners, annual income is rarely set in stone, as many are paid distributions and drawings based on the firm's performance rather than a wage.

These are just a few examples of how partners can have unconventional income profiles. Unpredictable earnings, combined with tightening lending criteria in the UK, mean even the wealthiest legal professionals may require bespoke mortgage solutions when trying to secure a dream property. Luckily, Investec Private Bank is on the case.

The client

A partner with a leading international law firm wanted to move to a new family home in London. Rather than sell their existing property, the client was keen to remortgage it as a buy-to-let (BTL), freeing up equity to use as a deposit for the new home.

The challenge

As with many partners within the legal profession, the majority of the client's income was paid as an annual distribution, which was supplemented with monthly partnerdrawings. The partner was seeking an interest-only BTL mortgage with an LTV of 75% on a £2.6 million property.

Unpredictable earnings, combined with tightening lending criteria in the UK, mean even the wealthiest legal professionals may require bespoke mortgage solutions when trying to secure a dream property.

The size of the loan, combined with no history of rental yields and atypical earnings, meant the client's needs were difficult for traditional lenders to fulfil. At Investec, we were able to look at the bigger picture.

The solution

A high LTV mortgage is always a risk on premium properties, but there were a number of mitigating circumstances for our client.

For example, while a 75% LTV is above our standard maximum LTV, the client agreed to make two mandatory repayments from their personal income over the initial two years of the mortgage to bring this down to 70%. These payments would be in addition to standard repayments made from the rental income. The client's existing asset base and the location of the property also ticked all the right boxes.

These factors gave us all the evidence needed to make our decision. The final verdict? Mortgage approved.

Finding the right solution for this particular client required a holistic view of their financial situation and a bespoke approach tailored to high-net-worth individuals with unusual income patterns. Investec Private Bank regularly accommodates the borrowing needs of legal professionals, so we have a thorough understanding of how partner pay structures operate, which provided us with confidence of this client's current and future earnings potential. Case closed.

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