Mountain of Equity....no way of getting at it...

[harry_angel]

I have a property which has in excess of £1.5m equity in it.

 

And I can't get at any of it.

 

And I need to, albeit only 10%/£150k. The standard routes are blocked as follows:

 

• Conventional "public" 2nd charge - blocked, main lender won't allow it
• Re-mortgage/increase of existing loan via current lender - blocked, can't go through (now, more strict) affordability stress test checks again
• Separate 3rd party secured personal loans - blocked, as above, main lender won't allow it and probably can't withdraw enough in any case*

 

Which to my knowledge only leaves a private loan from a high-net-worth.

 

This is achievable in principle however....I can't offer them a formal, land registry, "official" 2nd charge on the property, sitting behind the primary lender (because of bullet 1 above) on the Land Registry. This then narrows the "market" of HNWs right down to very close personal connections, as opposed to any and all Tom, Dick and Harrys who fancy making 8-12% interest rather than having it sit, inert, in some no-interest account.

 

So: long story short, despite having all this equity I can't even get at the 10% of it I need for some crucial renovations. And trust me, I'd be bonkers to sell the house.

 

Are there any creative souls out there with a solution?

 

 

*I am 99% sure that this strategy is a no-go, but not quite 100%.

 

 

[SimonD]

Have you taken legal advice on this? I know someone who was able to put a 2nd charge on a property regardless of the first charge having a clause in the agreement not to allow this. I think there is also now something called an equitable charge which doesn't provide the 2nd charge with the ability to force a sale of the property.

 

[harry_angel]

Thanks @SimonD 

 

I haven't taken pro advice yet, but intending to ASAP.

 

Would be really interested to know how your contact managed to override the 1st charge's clause. I guess the way that leaps out is simply....to not tell the main lender. That way the 2nd lender is still covered, but clearly this route is a bit riskier.

[SimonD]

I don't fully understand the legal ins and outs of it and it was a few years ago, but as a general overview it was first about approaching the restrictive lender to obtain a consensual agreement on the basis that there was significant equity in the property and also a bit of leaning on the argument that the restrictive clause may be unfair and unenforceable in any case. However, this situation may very well have changed due to current accepted practise and case law, which might be why equitable charges have grown in use. Sorry I can't be more helpful on this point.

 

 

[harry_angel]

@SimonD thanks Simon. Hmmmm. 

 

I can't see that approaching the restrictive lender would play out well, even if your connect did pull it off.

 

If anyone else has any genius brainwaves I would absolutely love to hear them!

[Ferdinand]

Sometimes accessed through a solicitor, I think.

Do you have something like a life policy or potential pension lump sum you can secure it against? Life companies used to offer low interest loans secured against such. Can your pension provider loan you against the future lump sum? Do they still? I once had one from Standard Life.

 

Personal loans are currently around 3% up to 30k. Is that enough to help?

 

Or you could get PP to build in your garden ?. (Runs away at high speed.)

[SimonD]

20 minutes ago, harry_angel said:

I can't see that approaching the restrictive lender would play out well, even if your connect did pull it off.

 

Don't count your chickens yet - you know the old maxim that if you don't ask you don't get ? If you have such considerable equity and your history is impeccable, discussions with the underwriter, even through what appear to be intransigent lenders can pay off sometimes. I know, because I've negotiated mortgage lending for myself from a lender who wouldn't normally touch self-build with a barge-pole.

 

Are you also dismissing the idea of exploring an equitable charge?

 

I suspect the problem you might always come back to is point 2 of your OP as any mortgage based lending will need to pass those tests - ridiculous as many of them might be!

 

I quite like @Ferdinand suggestion of getting PP in the garden ? (I'll run away now too!)

[Mr Punter]

How about remortgage through a new lender?  If you go through a decent broker you may also get a better deal than you currently have.  I have just arranged a deal fixed for 5 years at less than 1% and they will do 80% LTV.  The broker should be able to steer you towards the right lender.

[harry_angel]

@SimonD I guess my nervousness around going to the lender is once you've done that, if you then later choose to do something a little creative a la the equitable charge then the account might be flagged or something. I tend to fly very low with the main lender, pay them on time, every time and leave them well alone.

 

I am very interested in the equitable charge via a HNW though, so thanks for that idea and will start digging into that in earnest tomorrow.

 

@Mr Punter alas remortgage via another lender is out due to bullet 2 above, our earning wouldn't pass the stress tests currently as my partner's situation has changed.

 

@Ferdinand my partner has a pension but I don't. I think it's a super-restrictive one, though, so that getting a loan against it is tough. Personal loans we are already tapped out on - we're paying them back each month standing on our heads but I think the algorithm has kicked in now and the only personal loans we're being offered are these awful credit builder credit cards for £3k!

 

Determined to crack this: was looking at the valuation letter earlier (not Foxtons I should add!) and it's absolutely bonkers we can't get at a measly 10% of what's there!

 

 

[Mr Punter]

The stress test is not really that onerous.  Not all lenders have the same approach and yours may be a little conservative.  If it is actually the case that no lender thinks you can afford the additional repayments, maybe they are right.

[harry_angel]

@Mr Punter been with the lender 6 years, not missed a payment or a deadline.

 

Happy to be proved wrong but my experience is contrary: two self-employed people? Providers are Not. A. Fan.

 

And the mortgage, while affordable, is undeniably big.

 

One option would be to find an interest-only lender though, as then the stress test might be much easier to pass.

[Mr Punter]

With the remortgage we are both owner / directors of ltd co trading 20 years.  They took into account dividends and salaries.  HSBC via a broker.  We got it at 0.94% but I think they are a bit more now.

[matthyde83]

Habito are currently offering up to 7x multiple of you take one of their lifetime mortgages (up to 40 year fixed)

[harry_angel]

@Mr Punter sounds like a swell deal. What multiple on earnings did you secure? Did you go for interest only?

 

@matthyde83 interesting, thanks, yes had heard of Habito. We have 1.5 years left on the current mortgage, but I really need the £100k+ prior to that.

 

Researching the interest-only route in order to increase affordability, and looking into private mortgages and equitable charges this week....

[matthyde83]

7 minutes ago, harry_angel said:

@Mr Punter sounds like a swell deal. What multiple on earnings did you secure? Did you go for interest only?

 

@matthyde83 interesting, thanks, yes had heard of Habito. We have 1.5 years left on the current mortgage, but I really need the £100k+ prior to that.

 

Researching the interest-only route in order to increase affordability, and looking into private mortgages and equitable charges this week....

 

If you remortgaged and spread it longer than 1.5 years your affordability will go up.  You could then make overpayments to bring it down quicker.

The Habito mortgage rates are quite a bit higher than you have but it depends when you weigh up the additional £100k at a higher rate versus what you have obvs.

[harry_angel]

This is interesting re equitable charge loans > https://www.taptoncapital.co.uk/equitable-charge-loans

 

 

[Mr Punter]

3 hours ago, harry_angel said:

@Mr Punter sounds like a swell deal. What multiple on earnings did you secure? Did you go for interest only?

 

I don't know.  I just forwarded our accounts and bank statements to the broker and discussed with them how much we wanted to borrow.  Repayment over 22 years.  £1,000 fee free legals and valuation.

[Zak S]

@harry_angel what is the exit strategy for this drawdown? I suppose the lender would want to ensure that element regardless of security.

 

If its remortgage then may be slightly early remortgage with Habito or others for example. This will keep it simple. But any lender would want to make sure it will be paid at the end of term and you can afford monthly payment and if they are not creating a charge on the property then they need to be satisfied that the loan can be paid without selling the property. Sorry not very helpful but the exit strategy is something all the lender (FI or high net worth individuals) look at.

Edited January 4, 2022 by Zak S

[Ferdinand]

Can you go for an equity release project "for my retirement", then back out of it in a few years?

[ProDave]

Why do you not just go to a broker and seek to re mortgage with a new lender for the existing mortgage amount plus what you wish to release?

[Zak S]

@harry_angel In 2019 I was in a situation where due to bank pulling their remortgage offer on a BTL property, a purchase from Auction was at risk after having paid a deposit.

 

The only thing that helped in that very stressful situation were friends and family as I was 70k short while remortgaging a different property took few months. So I do value the importance of reliable real friends and family.

[harry_angel]

@ProDave see bullet 2 in original post.

 

@Zak S thanks for the insight. Your 2019 situation sounds stressful indeed. I find it slightly insane, I guess, that in this supposedly evolved time we live in that one would have to go back to the "old ways" of passing a hat around family and friends.

 

On that note we have already had some help from a friend, who is now almost repaid (2 payments to go).

 

But re your earlier point the exit strategy is essentially: hang on to legal ownership of the property until such time as the acreage it sits in is develop-able (a matter of time, albeit quite a long time, is the professional view).

 

In the meantime however we're stuck in this financial bottleneck where we are having to bootstrap necessary refurbishments (the house has soared in value due to the demand for land pre/post covid, but will go a lot further still) out of earnings, which means everything moves at a glacial pace.

 

Depressingly this is looking more and more like the full-time job of kissing investor frogs until one takes pity on us OR doing a little bit here, a little bit there, by which time they'll probably lower us into the ground just at the precise moment everything's finished.

 

[Zak S]

19 minutes ago, harry_angel said:

But re your earlier point the exit strategy is essentially: hang on to legal ownership of the property until such time as the acreage it sits in is develop-able (a matter of time, albeit quite a long time, is the professional view).

One option could be to market it as attractive 'Option to buy' where a developer buys the right to buy the property in future at much higher price post a development milestone. Normally the developers will identify these sort of lands and approach the owners. I am not sure how the other way round would work where the land owner approach the developer. 

Edited January 4, 2022 by Zak S

[Ferdinand]

On 04/01/2022 at 16:43, Zak S said:

One option could be to market it as attractive 'Option to buy' where a developer buys the right to buy the property in future at much higher price post a development milestone. Normally the developers will identify these sort of lands and approach the owners. I am not sure how the other way round would work where the land owner approach the developer. 

 

That won't bring much money in up front, and without PP in place and locked in (ie started) it will be very tricky.

 

(Update: unless you find a dreamer. On another platform I was hearing of a long-term option purchase by a developer of a house with land when the lady died, and the pesky old lady lived into her 90s and he died first. Which is a bit like giving a tablet to a horse with a blow pipe. *)

 

@harry_angel Can you cobble together various revenue streams and loans - tax-free lodgers etc. It will be a jigsaw to get to 150k, though.

 

If you get to three lodgers, it is an HMO. But 2 could do towards 20k a year.

 

F

 

* The horse always blows first. 

[Dave Jones]

sell it.