The “low start” interest rate gave my company very substantial cash flow savings".

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1. Development of new state of the art student accommodation.

£16.1 million under CLP’s “low start” Market Maker at initially 4.95% interest rate including lender’s margin.

This recent development is in a north of England university town and consists of 386 ensuite student bedrooms. This superior accommodation let immediately the units became available, proving demand.

The CLP “low start” Market Maker was ideally suited to the client’s objective of holding the asset as a long-term investment.

The loan of £16.1 million was 81% of value. The loan structure, based upon a 30 year profile, was as follows:

Interest-only during the first three years with marginal loan repayments from years 4 to 10 reducing the debt to 75% of value – thereafter the repayment structure will be under review. As is common to the “low start” Market Maker there is a lender’s only break clause at the end of year 6 (without borrower penalty if exercised).

Client’s cash flow benefit
The gross revenue from the student accommodation block in the first year was £1,575,000 per annum

The “low start” Market Maker interest-only outgoing at 4.95% was £797,000 per annum

Providing a surplus to the client before running expenses of £778,000 per annum

The substantial surplus meant that the lender has invited the client to purchase additional property where the initial income may be low but the client believes he can add income over time – combining the low income from a purchase with the healthy surplus on the student accommodation blocks.

2. Residential investment portfolio in Cardiff and Oxford let to young professionals & university students

£26.79 million under CLP’s “low start” Market Maker at initially 4.75% and 4.95% interest rate including lender’s margin.

The client is an established investor in the residential investment market. His considerable portfolio is spread across a number of locations. His long term objective is to continue to grow the portfolio and retain for growth.

The “low start” Market Maker was ideally suited to the client’s objectives as it enabled him to benefit by gearing his portfolio to its full potential whilst still retaining a healthy cash flow surplus after mortgage outgoings.

The initial loan was for £20.94 million which completed early 2007.

This loan was refinanced out of his existing lender enabling the client to release capital of circa £2.5 million and still benefit from a healthy cash flow surplus.

Shortly after the first loan was completed the client used the capital released as his equity contribution to purchase a new portfolio. The loan was increased by a further £6.296 million.

By the time of this new advance the cost of funds had increased marginally. As the client commented, a “win, win” situation.The consolidated loan of £26.79 million was 80% of value. In both cases the funds were interest-only for 5 years then soft repayment thereafter in line with cash flow predictions.

Client’s cash flow benefits after both loans had drawn down.
The gross revenue from the portfolio in the first year was £1,675,000 per annum

The “low start” Market Maker interest-only with blended outgoings of 4.85% was £1,299,000 per annum

Providing a surplus to the client before running expenses of £376,000 per annum

The client feels that the “low start” Market Maker gives him an edge on the market as he can afford to service lower yielding property with higher capital values.

This document is only a guide based upon information currently available and must not be relied upon. The actual structure will be contained within the lenders’ mortgage documentation. It is recommended that the borrower’s legal advisors should examine the documentation carefully and report to their clients. CLP gives no warranties as to the accuracy of any information supplied by it, now or subsequently, and can accept no liability for the actions of interested parties based on reliance of information provided by it. The rate is a function of the money market and can fluctuate daily.