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Case Study: Capital raising on a Right to Buy property in its pre-emption period

Posted: 30/10/2018

We had a horror of a case come across our desk which really got us scratching our heads trying to find a way to help the clients borrow more on a Right to Buy property in its pre-emption period when the Council refused to grant a Deed of Postponement.

The Problem

A couple needed help raising funds to pay for a new bathroom and consolidate debt that had been accrued from substantial refurbishment works completed on their home to convert it from a two bedroomed property to a four bedroomed property.

The couple approached their local Mortgage Broker for help releasing equity from their Right to Buy to raise additional funds. Unfortunately, the Right to Buy was still within its pre-emption period and the Council refused to grant a Deed of Postponement. Knowing that raising the funds they needed through a first charge mortgage lender would therefore be out of the question, the Mortgage Broker called Ingard’s Specialist Team to find out whether any of the lenders on their panel could offer a solution.

The Solution

The case was assigned to a dedicated Case Manager who reviewed the options available. One of the biggest stumbling blocks the Case Manager came up against was one of the customer’s income was very low due to them becoming recently self employed.

In a nutshell, the customer had been made redundant from an employed Personal Training role and decided to change careers temporarily before returning to being a Personal Trainer on a self-employed basis. As he had only been self-employed for a short amount of time he had very little proof of income which made proving affordability very difficult as it had to be based primarily on the other customer’s income.

The number of lenders available was greatly reduced due to only a few considering lending in the customer’s pre-emption period on a Right to Buy and even fewer having the level of flexibility needed when it comes to income multiples to provide the customer with the loan they need.

There were two second charge lenders in total who would offer a strong income stretch and consider lending to customers in their property’s pre-emption period without a Deed of Postponement being granted. The maximum loan to value with both lenders was capped at 70% loan to value.

The lender chosen for the deal was Central Trust due to them offering a fixed rate with no early repayment charges meaning the customer would be able to remortgage onto a better deal when their pre-emption period comes to an end. The maximum loan offered was £33,000 which was lower than they originally applied for, however, it was enough for the couple to consolidate most of their debts into a lower monthly payment. The client was grateful that they were now financially better off and planned to return to their Mortgage Broker once they were out of their pre-emption period.

The introducing Mortgage Broker earned £827.50 on this deal.