Articles and insights to help you get more out of Pauzible.
A guide to how Pauzible’s Equity Partnership Loan Agreement (EPA) works, the 1.4x mechanism and why this model is transforming property finance.
In a climate of high buy-to-let (BTL) mortgage interest rates, many BTL landlords are seeking alternatives to a traditional second charge mortgage or bridging loan for obtaining additional finance over and above their existing first charge BTL mortgage by utilising the untapped equity wealth still locked in their BTL property.
Pauzible’s Equity Partnership Loan Agreement (EPA) has emerged as a strategic solution, helping landlords in England and Wales release some of the equity wealth locked in their BTL property. Perhaps unlike a traditional mortgage or bridging loan, a Pauzible EPA involves a genuine economic partnership between a BTL landlord and Pauzible.
Pauzible’s EPA allows a landlord to obtain an upfront cash amount of up to 10% of the value of their BTL property for business purposes for a five-year term. This is subject to a maximum amount of £150,000 and a maximum combined loan-to-value ratio of 85% after taking into account the existing first charge BTL mortgage on the property and the additional EPA financing amount provided by Pauzible.
The amount that the landlord repays Pauzible at the end of the five-year EPA term, or earlier if they so choose, is directly linked to the value of the property. The repayment amount is typically up to 14% of the value of the property. As a genuine economic partner, Pauzible shares in the risk of the landlord’s property, whether its value goes up or down. Until the repayment date, the landlord also pays Pauzible a monthly premium of up to 10% of the monthly market rent from the property.
An EPA is a legal agreement between the BTL landlord and Pauzible executed as a deed by the landlord, whereby Pauzible provides an upfront cash amount – typically, up to 10% of the property's value, subject to a maximum amount of £150,000 and a maximum combined loan-to-value ratio of 85%, – for a five-year term, with the repayment amount based on up to 14% of the property's value. Until the repayment date, the landlord also pays Pauzible a monthly premium of up to 10% of the monthly market rent from the property.
From a structural perspective, the EPA is designed to provide additional financing over and above the landlord’s existing first charge BTL mortgage by utilising the untapped equity wealth still locked in the BTL property.
To secure its interest, Pauzible may enter a restriction on sale notice (RX1) and an agreed notice (AN1) in the title of the property registered with the HM Land Registry, and a second charge on the property.
The Pauzible EPA model helps conserve cashflow from a landlord perspective compared to alternatives such as a traditional second charge mortgage or bridging loan, while also facilitating an appropriate risk-adjusted return for Pauzible.
Because Pauzible does not charge monthly interest at the levels that a traditional second charge mortgage or bridging loan might, it calculates the repayment amount at the end of five years by applying a multiplier of 1.4x as follows:
● If a landlord unlocks 10% of their BTL property’s market value at the outset when entering into a Pauzible’s EPA, Pauzible’s share in the value of the property for calculating the repayment amount is 14% (i.e. 10% x 1.4).
● Thus, when the BTL landlord repays Pauzible at the end of five-year EPA term, they repay 14% of the property’s market value at that time. This applies regardless of whether the market value of the property has gone up or down since the date when the landlord entered into the Pauzible EPA.
The landlord can choose to repay Pauzible early anytime during the five-year EPA term. If they choose to repay Pauzible within three years of having entered into the EPA, however, the repayment amount is 14% of the greater of the market value of the property at the time of repayment and the market value of the property at the time of entering into the EPA.
Early repayment to Pauzible is automatically triggered if the property is sold or remortgaged at any time prior to the end of the five-year EPA term. If this trigger occurs within three years of the landlord having entered into the Pauzible EPA, the repayment amount is 14% of the greater of the market value of the property at the time of repayment and the market value of the property at the time of entering into the EPA. If the trigger occurs after three years of the landlord having entered into the Pauzible EPA, the repayment amount is 14% of the market value of the property at the time of repayment.
From the time when the landlord enters into the Pauzible EPA until such time as the repayment amount has been repaid under the EPA (as described above), the landlord also pays Pauzible a modest monthly premium under the EPA, as compared to the typically higher interest rate levels that are paid on alternatives such a traditional second charge mortgage or bridging loan. Under the Pauzible model, the monthly premium is generally 1/10th of the monthly market rent from the property. This modest monthly premium also provides landlords with a means to conserve cashflow during the EPA term as compared to alternative financing at high interest rates.
Another crucial advantage of Pauzible’s EPA from the landlord’s perspective is that Pauzible shares in the risk of their BTL property, whether its value goes up or down. The repayment amount to Pauzible at the end of five-year EPA term, or upon early repayment at any time after the end of the third year from of the five-year EPA term, is typically 14% of the property’s market value at that time. This aligns Pauzible's economic interest directly with the landlord’s.
Pauzible’s EPA has in part been inspired by the Home Equity Investment (HEI) market in the United States, which has become a multi-billion dollar industry.
In the US, many homeowners are "locked” into 30-year fixed rate mortgages at historically low mortgage rates (often only around 3%). Taking out a new loan or refinancing could mean losing that rate. Against this backdrop, HEI products allow them to access extra cash using home equity without having to make any monthly payments on those for up to 30 years.
This is a relatively new concept in the US, where homeowners partner with investors who provide an upfront cash payment in exchange for a share of the future appreciation of the home. It allows homeowners to access home equity without taking on additional debt or making monthly payments. There are usually no restrictions attached to this and the money is repaid predominantly through a home sale or a refinance of the existing mortgage. Investors have more alignment with the homeowner, sharing any increase or decrease in property value.
A. The repayment amount to Pauzible at the end of five-year Pauzible EPA term or upon early repayment at any time after the end of the third year of the five-year EPA term is (typically) 14% of the BTL property’s market value at that time. This applies regardless of whether the market value of the property has gone up or down since the date when the landlord entered into the Pauzible EPA.
A. The repayment amount to Pauzible at the end of five-year Pauzible EPA term or upon early repayment at any time after the end of the third year of the five-year EPA term is (typically) 14% of the BTL property’s market value at that time. This applies regardless of whether the market value of the property has gone down or up since the date when the landlord entered into the Pauzible EPA.
However, if repayment occurs within three years of the landlord having entered into the Pauzible EPA, the repayment amount is (typically) 14% of the greaterof the market value of the property at the time of the repayment and (the market value of the property at the time of entering into the EPA.
A. Typically, your current BTL mortgage lender will require you to seek their consent for obtaining additional financing against your mortgaged property. From a Pauzible perspective, to secure its interest under the EPA, Pauzible may enter a restriction on sale notice (RX1) and an agreed notice (AN1) in the title of the property at HM Land Registry, and a second charge on the property. This will require us to obtain your current first charge BTL mortgage lender’s consent.
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Pauzible
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Pauzible Asset Services (UK) Limited is registered in England and Wales with Company number 15917067. Our registered office is at 38 Lombard Street London EC3V 9BS. Pauzible is a trading name of Pauzible Asset Services (UK) Limited. Pauzible Asset Services (UK) Limited is registered with the Information Commissioner's Office with Registration reference ZC088971.
Pauzible Asset Services (UK) Limited's business falls outside the scope of financial services regulation and Pauzible Asset Services (UK) Limited is, therefore, not authorised and regulated by the Financial Conduct Authority. This means that Pauzible’s customers do not have any of the protections under the Financial Conduct Authority rules and do not have any cover from the Financial Ombudsman Scheme or the Financial Services Compensation Scheme in relation to any contract that they may have with Pauzible Asset Services (UK) Limited. Customers should ensure they understand what this means before they use the Pauzible product.
About the author
Sunil Chander
Co-Founder
Sunil oversees operations and compliance at Pauzible, drawing on his extensive experience as the founder and CEO of Dawnbud Limited, a financial services consulting firm. His prior career included senior roles in investment banking at Smith New Court and NatWest. He holds an MBA from LBS, M Litt from Oxford and a PhD from Cambridge.
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Pauzible Asset Services (UK) Limited is registered in England and Wales with Company number 15917067. Our registered office is at 38 Lombard Street London EC3V 9BS. Pauzible is a trading name of Pauzible Asset Services (UK) Limited. Pauzible Asset Services (UK) Limited is registered with the Information Commissioner's Office with Registration reference ZC088971.
Pauzible Asset Services (UK) Limited's business falls outside the scope of financial services regulation & Pauzible Asset Services (UK) Limited is, therefore, not authorised and regulated by the Financial Conduct Authority. This means that you do not have any of the protections under the Financial Conduct Authority rules and do not have any cover from the Financial Ombudsman Scheme or the Financial Services Compensation Scheme in relation to any contract that you may have with Pauzible Asset Services (UK) Limited. Customers should ensure they understand what this means before they use the Pauzible product.
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