Property price: €900,000
Buying in: Eze
Mortgage amount 1: €750,000 interest only
Mortgage amount 2: €150,000 repayment
Type: Part Interest only & Part repayment
Rate: 2.3% Fixed + 1.16% variable
Term: 2 year interest only + 7 years repayment with 2 years on low start repayments
The client is a retired Doctor who has some property investments in both the UK and France. He was eager to buy a new villa in a small village town near Nice. He already had a mortgage-free property in the same town, but had decided to upgrade. He did not want to sell the existing property immediately as the rental of the property was going well.
The client was already banking with a large French retail bank with a branch in Nice. However, he struggled to obtain an interest-only mortgage as he did not have enough net assets. This only left us with a capital & interest repayment option and the main initial concern for the lender was the client’s age. He asked us for help with speaking to the head office of his existing bank.
Having discussed the options with the client’s existing bank, we confirmed that the bank could not offer an interest-only product as in their view the net assets in his portfolio were not sufficient to match their strict criteria. Furthermore, they refused to consider a mortgage on a 20 years on repayment basis as the client would be over 80 years old at the end of the term – the maximum repayment age.
We tried decreasing the duration of the mortgage, however, it was not possible due to the affordability ratio.The shorter the duration, the more the monthly repayments. As a result, the criteria of below 40% debt ratio was not met to support the new mortgage.
At that moment, we decided to apply for a mortgage with a private bank in Monaco. The private bank in question has no limit on age criteria and their attitude to debt to income ratio is more relaxed. Here, the bank looks at all the committed expenditure vs income too, however, when the ‘rest-a-vivre’ is more than a couple of thousand pounds a month, the bank will be satisfied that the client has enough money left over.
Moreover, speed was of the essence as the client had little time to complete the purchase after fruitless application with his original bank. Here, the private banker asked for far less documents when compared to retail banking counterparts thus, speeding up the process.
This private bank offers up to 100% LTV with a side investment of 30% to be deposited with the bank. Moreover, we could look at a short-term interest-only bridging loan, as the client is intending to sell his other apartment in the same village. Because of the so called ‘promesse de vente’, the bank was happy to lend on an interest-only basis as they were satisfied that this part would be paid off by the client when selling the property. This has been provisioned for 2 years with a possibility of extending for another 2 years if the criteria were met.
With the private bank, a charge is put against the property to be purchased as well as up to 30% LTV of the loan amount is asked in cash collateral. This acts as an additional security, but the idea is that the bank can show the client how they can grow the invested capital with the bank. Private banks look for the longer term relationship with their client’s and want to impress the client with how they manage their portfolio.
In the end, we’ve managed to place the mortgage with the private lender on split basis where the majority of the loan was put on to a interest-only part on a two-year renewable deal. As long as there is a secondary property to be sold in the near future, the bank is happy to renew the deal at their discretion. The 7 year repayment had a low-start initial period of 2 years – essentially an interest-only period before the mortgage switches to repayment. After that the month payments were increased.