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What is a link mortgage?

Peter Izard, BDM at Investec Private Bank | 08:59 Wednesday 21st August 2019

Assume you have a high-net-worth (HNW) client who finds a new property they want to purchase before they have sold their main residence — what solution would you choose.

The obvious answer here is bridging finance, but bridging finance may not always be the best solution. Your client could find it more economical to have a bespoke solution structured for them by a private bank.

Private banks are geared towards the complex needs of HNW individuals, with experts who are able to analyse every application on its own merits and create a solution that meets the specific requirements of the individual borrower. 

The entry level for the wealth of the client varies from bank to bank. At Investec Private Bank, for example, if a borrower is applying for a mortgage, we ask for a minimum annual income of £300,000 and typical net worth of approximately £3m or more.

And for clients who meet these criteria, we are able to structure genuinely bespoke solutions. One such offering is something we refer to as a link mortgage. 

This allows a client to remortgage their home while raising capital to fund the deposit for the purchase of a new main residence. This means a mortgage secured against both properties. 

In this scenario, the loan is usually structured in parts, with the part attributable to the old main residence typically on an interest-only basis. The client will then be given up to two years to sell their existing property. Given the nature of the solution, it is structured so that there is no early repayment charge on the loan amount apportioned to this property, so that as soon as it is sold, repayment can be made on that element of the loan.

This approach provides a longer-term solution, usually at lower rates when compared with traditional bridging loans. It is, however, worth pointing out that, as this is not a bridging loan, there is no rolled up interest and so affordability needs to cover both elements of the loan.

In the right circumstances and for the right client, however, a link can provide a more suitable solution than a bridge.

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