The old adage that renting is throwing money away is certainly not the view held by many of the super-rich currently residing in London.
It was recently reported that pop superstar Rihanna has been secretly renting a London mansion.
Why Rihanna would be renting is unknown, but she is not alone when it comes to ultra-wealthy tenants in the capital.
According to Knight Frank, Q1 2019 saw the highest number of tenancies agreed and new prospective tenants registering in prime central London (PCL) and prime outer London (POL) for five years.
So why are so many high-net-worth (HNW) individuals turning to the prime rental market in London and what opportunities does this hold for mortgage brokers?
The waiting game
The growing cost of stamp duty, coupled with uncertainty over the capital’s housing market, have been cited as reasons for a boom in the rental ‘try before you buy’ trend among HNW clients.
Renting can provide an all-important stepping stone for any HNW client who may not be sure where they want to buy or for how long they wish to stay for; whether it be due to family, business or lifestyle reasons.
According to Knight Frank, the number of new prospective tenants for properties rented out at £5,000-plus per week reached its second-highest level in Q1 2019, while the number of viewings was the strongest ever.
Just as some would-be buyers may be nervous in the current climate, so too are some sellers, which has led to a healthy availability for rental properties.
In Knight Frank’s April Prime London Lettings Index, Tom Bill, head of its London residential research, says: “Both sales listings and lettings listings have seen large spikes over the last year. This volatility reflects how some landlords have attempted to sell in response to higher taxes, but have returned to the lettings market after failing to achieve their asking price.”
For any HNW client who is taking the ‘wait-and-see’ approach and doesn’t wish to sell their home in the current climate — remortgaging as a buy-to-let (BTL) could be an option, which is where an intermediary can help.
A client’s affordability may be stretched in order to maintain their property and buy a new one. As such, all forms of their income and assets may need to be taken into consideration in order to secure a BTL mortgage, something which private banks are adept at assisting with.
Remortgaging as a BTL
We were recently able to assist one couple who owned a prime property in London, but were relocating to Africa. They were looking to remortgage their UK residence as a BTL property and raise some capital to replenish their liquidity.
Although the couple’s net asset value met our lending criteria, their earnings weren’t enough to support the size of the loan. Also, because the property was not yet let, it was yet to show any return which could support the loan repayments.
To overcome this challenge, we offered a mortgage to the couple and one of their parents, whose income supported the remortgage and who would still be based in the UK.
We were able to offer a competitive five-year fixed rate interest-only BTL deal. The parental support made the mortgage affordable while the property was still on the market and available to let. It also gave the clients the option of returning to the UK and their property should they so wish to do so in the future.
Rihanna’s luxury rental may have grabbed the headlines because of her superstar status, but it also highlighted the demand there currently is for prime London rentals and the potentially sizeable BTL opportunity this presents for brokers and HNW clients.
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