Ian Monks Operations manager at Commercial Mortgage Solutions

The client has low gearing at 56% and there is plenty of room to fully finance the conversion works of £200,000 to the former warehouse, although I would question his cost estimate of £200,000 as this is only around £8000 per apartment.

If we are being asked to arrange a refinance of this property he should be asked to revisit his figures and provide detailed costings, as any lender will refer these to its appointed valuer or quantity surveyor. While there appears to be sufficient equity, significant cost overruns are not looked upon favourably by lenders and can spoil the relationship for future schemes.

The current interest rate being charged by his bank at base plus 2% is fair bearing in mind that the former warehouse is still in the development phase and I would not envisage a pricing improvement on this part of the overall debt until completion of works. He could of course stay with his current lender in the short term if this suits him better. Once the conversion works are complete and the property is let to the local authority he should be able to attract fine pricing from a lender such as a clearing bank or one of the building societies at around 1.1% above BBR.

It is also worthwhile checking the open market rent for the apartments as, if there has been a discount to get the local authority to sign a lease, and this is only for a short term, there is a possibility of rental uplift and an improved borrowing capacity in the future. We do not know the value of the other properties in the portfolio and whether they are income producing. If we are to rely on the rental from the former warehouse then interest cover at say 125% would support a facility of around £1.8m, which would clear the existing total debt, cover the conversion costs and leave a balance that could be drawn to finance future schemes.James Hanrahan

Placement manager at Commercial Mortgage Desk

The client wants a better interest rate, repayments on an interest only basis and the ability to release further equity, but what is most important to the client? The cheapest interest rate or maximum LTV? The best interest rate deals will be between LIBOR +1%-1.3%

The interest saving between these two extremes on a loan of £750k is £187.50 per month. However, the best LTV deals will be between 75% and 85%.The additional loan that can be raised on a £1m property between these two extremes is £100k – this could be a deposit on another investment property.

So, he needs to decide which properties he is going to hold as long term rental investments, complete their refurbishment/conversion and fill them with tenants, using the BBR+2% mainstream bank finance. Then remortgage and repeat the cycle.

Every developer needs a mainstream bank relationship and BBR+2% is fair. But development finance has two stages and when a building is ready it should be put with a long term lender to reduce interest rates and increase LTVs.

Commercial mortgage institutions have many advantages over mainstream banks. These include higher LTVs, pure commercial up to 80% and residential investments to 85%; lower interest rates and lower rent interest cover criteria. Last, with a commercial lender, if the monthly repayments are made, he should be left alone to run the business.

As soon as the lease is signed with the local authority refinance the building at 85% LTV on eight year money (which seems a real bargain right now) at realistically 6.18% equivalent to BBR+1.43%. Technically, £11,000 per month rent should support a total debt of £1.94m.

The days of brokers automatically charging an additional 1% fee are ending. If the money is available, take it, you will find good deals.Lynsey Sweales

Marketing and PR director at The Money Centre

Due to the specialised nature of this property it is particularly important to source a product that will match all of the client’s criteria in order to generate the best results. First, it must be taken into consideration that not all lenders will lend against a property that is going to be let to a local authority.

Second, the client is trying to refinance the entire freehold of the property, rather than refinancing the units on an individual basis. Refinancing on this basis could possibly incur further restrictions, as there are often limitations on the number of units that a block can contain when trying to carry out this type of procedure.

The client needs to raise at least £1.4m against this property to clear the existing loan, which will require a specialist lender who can deal with a property of this type. The client could approach a buy-to-let mortgage broker who would have the specialist knowledge in this type of application. It is possible to source a suitable lender offering a three-year fixed rate product of just 4.99% in this case. This would have the double effect of both reducing the client’s current monthly outgoings and enabling the client to release further equity. The client could then potentially release £1.8m, which would not only clear his current borrowings but should also release enough equity to invest in further properties.

It would also be highly beneficial to the client if he were able to source a lender that could secure this loan on an interest only basis, which would also reduce the client’s monthly repayments, but this will need some guidance as many lenders will only grant this type of applicant a product on a commercial basis.

Despite the additional borrowings of £400,000 the client could reduce his repayments by up to £400 per month by sourcing a competitive rate of 4.99%, as opposed to the original rate of BBR +2% margin.