Short-term contract: professional sportsperson
This information is for intermediary use only.
This case study is for illustrative purposes only.
Case study highlights
26 year old professional footballer with basic salary of £1,500,000.
A high loan to value (LTV) mortgage with the ability for large capital reductions.
Client had a short-term contract and potential relegation of club.
Investec agreed a multi-part mortgage to accommodate the client’s current playing contract.
A professional footballer seeking a residential mortgage and needing a high loan to value mortgage structured with reductions to take into account the short term nature of his contract and potential relegation of the club.
The key challenge
The client wanted to buy a main residence property valued at more than £2,700,000. He required a mortgage at least 90% LTV.
A few challenges have been presented to the private banker:
- The client had a short-term contract.
- Potential for the client’s income to be reduced if the his club was relegated throughout the term of the mortgage.
The private banker’s challenge is to help the client borrow a much higher loan to value than would normally be possible, while also considering the potential impact of relegation of the club.
The client's dedicated private banker investigated two options for the client to consider:
Solution 1 - a three loan structure
£2.025m (75% of the purchase price) to form the core of the loan.The loan was structured over a 5 year term, with an initial interest rate of 3.50% over Investec Base Rate which would reduce to a margin of 3.00% upon repayment of loans 2 & 3 and a reduction in the overall LTV to 75%.
£100,000 on an interest only basis with a bullet repayment over 12 months to tie in with receipt of the next tranche of the client’s signing on bonus. The interest rate on this portion of the loan would be 3.50% over Investec Base Rate.
£305,000 on a capital and interest basis over an 18 month term (well within the client’s current contract term). The interest rate on this portion of the loan would be 3.50% over Investec Base Rate.
Three loans with varying terms and repayment schedules, designed to take full advantage of the client’s contractually guaranteed bonus payments and significant excess income to reduce the LTV to 75% in the near term.
The reductions would minimise the impact of the clients club being relegated on his ability to service the loan and also enable the client to reduce the margin on the loan within 18 months.
Solution 2 - a two loan structure
£1,890,000 (70% of the purchase price) to form the core of the loan. The loan was structured over a 5 year term, with an initial interest rate of 3.50% over Investec Base Rate which would reduce to a margin of 3.00% upon repayment of loan 2 and a reduction in the overall LTV to 70%.
£540,000 on a capital and interest basis over a 30 month period (the remainder of the clients contract), amortising to zero. This interest on this portion would be 3.50% over Investec Base Rate.
After liaising with the client the decision was taken to proceed on the basis of structure 2 for the following reasons:
- The capital and interest repayments remained within Investec’s interest coverage parameters from outset when taking into account a potential haircut in remuneration, should his club be relegated.
- The client would not be using the majority portion of his signing on bonus to service a bullet repayment, leaving the client to spend this as he wishes while spreading the repayments over a longer period.
- The loan to value will reduce to 70% leaving the amount outstanding at a more comfortable level and on a far less aggressive basis than in structure 1, tying the term of the loan in with the remaining term of the client’s current contract.
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