It may sound a bit counterintuitive but structuring finance for cash buyers makes up a large portion of our business, so I thought I would put some of the reasons down as to why our clients may want to look at structuring some lending on their properties.
The first reason is that it is cost effective. Borrowing is cheap at the moment! With interest rates at a historic low we are achieving lending as low as 0.5% over Libor (as I write 0.54% on a 1-week basis) meaning that if you have cash or equities to use as security you can borrow at only a small amount over 1%. Many of our clients with some knowledge of the stock market believe that they can get considerably higher returns than this from their investments, rather than tying up a large chunk of equity in the property.
Offshore funds. If funds are repatriated into the UK then, depending on the clients circumstance, there can often be tax implications. Many of our clients borrow money against their purchases instead as this minimizes the amount of cash they need to bring in.
Investment properties. In the UK you are only taxed on the profit you make on your rental income. If you can show the tax man that you have borrowed for the purposes of a buying the property, and need to pay interest on your borrowings, then you only pay tax on the rental income that is above the cost of your borrowing.
As you may imagine Private banks love to deal with clients who have access to some funds and so achieving lending can be remarkably painless and quick for the cash buyer. This means that it is possible for a purchaser with sufficient funds exchange on a property, then investigate to see if a finance structure is preferable between this point and completion.
I should point out that we are brokers rather than tax advisers so we always encourage clients to take expert advice before following any of these routes but we do see many people seeking finance for these reasons. If you do feel that you would benefit from a quick chat to see if any of the above may apply then please do get in contact and we would be happy to discuss.