In a challenging mortgage climate, properties have been slow to sell. According to research by Hamptons estate agents, the average home sold in the UK in September 2023 was on the market for 57 days, which was the longest duration since 2012*. Meanwhile, sellers have been accepting an average discount of 4.2 per cent from the original asking price**.
In this environment, some clients may want to buy a new property before they’ve sold their existing one. “It’s understandable that clients may want to move without facing pressure to accept an offer that may not be in line with their expectations,” says David Knott, a Private Banker with Investec’s Mortgage Intermediaries team. “The benefit of working with a private bank is that we can look at a range of different situations and mortgage structures to find a way to help.”
One solution is a Home-Link mortgage: a form of lending which is secured against both the client’s existing home and the new target property. “With a Home-Link mortgage, the expectation is that the existing property will be sold within an agreed term to reduce the balance and overall debt servicing requirements,” explains David. “The time period for the mortgage relating to the existing property is typically up to two years and gives the client more flexibility to choose their entry point into the market and to derive more value from it. If they sell in advance of that date, no early repayment fees are due if the rate is on a variable rate basis.”
The mortgage relating to the new property is arranged on a longer-term basis, like a typical mortgage facility.
A broker recently approached Investec on behalf of a management consultant who wanted to relocate to the UK from overseas and purchase a six-bedroom detached house in Surrey. The client was wary of market conditions and wanted to retain their existing five-bedroom property nearby until they received an acceptable offer or sales prices recovered.
Investec was able to provide a 60% LTV Home-Link Mortgage of £2.4m to both cover the purchase of the new home and refinance the existing property. In addition, Investec also released equity from the existing property to assist with the new purchase. The total mortgage term was eight years, with a two-year, interest-only term on the existing home.
For a client to be eligible for this kind of mortgage, they must be able to prove affordability on the total proposed debt. “Our understanding of high-net-worth individuals means we’re familiar with a variety of income streams, including discretionary and foreign currency income,” says David. “In this recent example, the consultant received variable bonus income and had exposure to Hong Kong dollars, which we were comfortable with.”
While each case is unique, there are some situations where a Home-Link Mortgage might be less appropriate. “If your client has a historic low mortgage rate on their existing property, refinancing might not work for them as they may not be able to achieve similar rates in today’s market and their costs would increase,” says David.
With a Home-Link mortgage, the expectation is that the existing property will be sold within an agreed term to reduce the balance and overall debt servicing requirements.
In this situation, a standalone facility for their new home might work. “If the client could achieve a ten per cent deposit plus the stamp duty, we could look at a higher LTV mortgage on the new property with a repayment approach structured around their income, including when the existing home is sold.”
In addition, if a client has property investments, it may also be possible to leverage these assets to raise capital. “Home-Link mortgages are for residential properties and assume the existing home will be sold. However, we could explore other ways to raise capital, such as through remortgaging, if a client has a buy-to-let property or second home.”
David’s advice is to start discussions with our private banking team early. “We’re here to do the work – and find solutions – for you and your clients. This is more important than ever at a challenging time.”
* Longest duration in a September since 2012
** Reference: Zoopla, September 2023
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Investec residential mortgages are only available for residential properties in England or Wales and are primarily available to UK residents and subject to eligibility.