I was approached by a client, a UK landlord, looking to purchase a holiday home in Spain. His direct applications to Spanish banks had been declined and the deadline for completion was fast approaching. Although his financial profile was excellent, the banks’ issue was that his sole income was from property rentals.
Buyer’s profile
The client, a UK landlord, owned more than 30 properties in the UK. Some of them were rented on short term lets and some on long term tenancy agreements. A proportion of his properties were owned by his limited company, the remainder were owned directly by the client. He was hoping to secure a 70% LTV mortgage over a 20 year period.
A proportion of his properties were owned by his limited company, the remainder were owned directly by the client. He was hoping to secure a 70% LTV mortgage over a 20 year period.
The challenges
Although Spanish banks will consider income from rented property, the default view of property investment is that it’s an unstable income source due to market volatility and lack of liquidity in the case of cash flow issues.
However not all lenders view rental income in the same way. Although some will only use a percentage of rental income or will deduct tax before calculating affordability, some will look at gross income and some will take into account the net worth of assets based on the proportion of equity in each property and calculate the stress risk should the property market fall significantly.
The challenge was to convince the bank the client’s future income was stable.
The Solution
We started with the limited company, presenting the turnover, assets & liabilities and the last three years’ net profits. We established there was a healthy retained profit within the company each year which some banks would take into account if the case was presented in a correct and transparent manner.
We then summarised the income the client withdrew from the company in addition to the income from the privately owned properties.
We also prepared a detailed report for each property including the market value, outstanding mortgage, date of purchase, the length of the rental lease and the net yearly income.
The decision
The mortgage was approved within a week for the full amount the client needed to complete on the purchase of his beautiful holiday home. Regardless of how complex or simple the case is, knowing which bank to approach and having the contacts and established relationships with the bank staff can make the difference between the case being approved or declined.
I vividly remember the day I called my client to let him know the mortgage had been approved. He was over the moon and his lovely wife very emotional. After they had lost all hope, a lifetime dream became their reality.
The conclusion
Another happy client, a glowing review on Google and a friend for life! And a proof that a UK landlord and among other rare cases can get a mortgage in Spain