The High Net Worth Large Mortgage & Large Loan Market
Posted on 9th November 2016 at 17:35
This brief report will review:
1. The role of the ‘mainstream’ mortgage lender in the provision of large-size mortgages
2. The role of the Private banks in the provision of large-size mortgages
3. The leveraging of other assets to provide large levels of borrowing
4. Mortgages for clients living or working overseas
As an independent mortgage adviser specialising in high-value mortgages for many years, I may confidently state that each of my High Net Worth (HNW) clients understands that managing their borrowing plays a significant role in their overall wealth management strategy.
The ability to borrow, via tailored mortgage solutions, can determine how those clients make their other key decisions, for example, to take advantage of investment opportunities, maximise cash-flow and liquidity, and to operate in tandem with their long-term financial goals.
Many of my HNW clients view the current low interest rate environment as potential for wealth accumulation through the strategic use of credit.
(1) All high street lenders must now follow strict rules in respect of their lending approach to every borrower, whether or not they are an HNW individual. If a client requires a high-value mortgage, has a significant and ‘standard’ earned income and is able contribute 25% or more of the purchase price, then that’s ‘meat and drink’ for the mainstream mortgage lenders.
The appetite of the high street banks for providing large-size mortgages declined significantly following the credit crisis but now many of them have re-entered that market; here are some examples of what they were offering, as at 1 November 2016:
60% Loan-to-Value - £10m mortgage at 1.28% fixed for 2yrs with a £995 fee (APR 3.5%)
60% Loan-to-Value - £10m mortgage at 1.93% fixed for 5yrs with a £995 fee (APR 3.3%)
75% Loan-to-Value - £10m mortgage at 1.39% fixed for 2yrs with a £995 fee (APR 3.5%)
75% Loan-to-Value - £10m mortgage at 2.20% fixed for 5yrs with a £995 fee (APR 3.3%)
High street lenders, however, are transactional; their underwriters adhere to rigid, prescribed lending criteria and will only accept borrowers who ‘tick all of their boxes’ – there is little room for negotiation.
(2) Accordingly, a mortgage provided by a Private Bank can be the best solution for borrowers with more complex financial circumstances or irregular income streams. No longer the preserve of the elite class, Private Banks have opened their doors to a much wider audience; they have the capability to offer competitive borrowing terms, with a more flexible attitude to lending. For example, an HNW client’s income might fail to meet the criteria required by the high street banks, even though the mortgage repayments are clearly affordable - a Private Bank may be prepared to consider that client’s ‘non-standard’ financial circumstances and then structure a bespoke tailored solution.
In effect, some Private Banks will make a lending decision based upon client’s overall wealth rather than just their earned income: much more flexibility is applied when assessing a borrower’s ability to repay a borrowing. In order to qualify for that flexibility, a client will need to satisfy the definition of an High Net Worth individual i.e. either a net annual income of £300,000 or net assets of £3m.
The Financial Conduct Authority has declared that High Net Worth individuals are usually asset-rich and therefore lending decisions may be determined by less conventional repayment strategies and how achievable those strategies are likely to be, rather than by standard monthly repayment plans.
Movements in interest rates are less likely to impact the loan affordability of an HNW client; such an individual will often have investment / funding strategies in situ and their overall financial position is likely to be unaffected significantly by any increases in interest rates.
Tailored solutions, featuring flexible repayment and attractive interest rates, are available to help clients in the following areas:
Residential and investment real estate financing solutions
Offshore mortgages available to clients owning properties through trusts or managed companies
Credit facilities designed for the specific needs of domestic and international trusts
(3) An HNW client may have other assets that could be leveraged to raise capital, at interest rates as low as 0.75% to 1.50% above LIBOR (London Interbank Offered Rate: the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London and currently 0.40219%).
Lines of credit, secured against investment portfolios, may be accessible to potentially increase returns or effective credit structures may be available in order to optimise liquidity and release equity held in various asset classes, including:
Cash, term deposits and dual currency deposits
Diversified equity portfolios of securities traded on many global exchanges
Global sovereign and corporate bonds
Certain structured products, a fund of hedge funds and gold
Examples of the potential loan-to-value borrowings are:
70% against diversified equities
60-80% against fixed income securities, depending on credit rating.
Bespoke solutions for dual currency deposits and principal protected structured notes
Single stock concentration loans available
(4) Whether you live or work or are domiciled overseas, it doesn’t have to be a barrier to applying for a mortgage in the UK. Mortgages from £1 million are available to clients who:
Have an annual income of at least £300,000 and/or net assets of £3 million plus
Are professionally employed clients working for international institutions
Up to 65% Loan to Value for owner-occupied properties
Up to 5 years for Interest Only; or up to 10 years for Capital & Interest
Unlimited overpayments allowed (an early repayment charge may apply if paid in full)
My role as an independent intermediary acting on behalf of my HNW clients is, therefore, to be their mortgage and/or funding matchmaker: to work closely with my clients’ other professional advisers e.g. accountants, tax advisers and IFA’s in order to source and to fulfil the most suitable credit solutions. Bespoke and often sophisticated lending solutions can be provided in order to satisfy the specific objectives of individual HNW clients.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Written by Nigel Osgood, Independent Mortgage Adviser
T: 01628 594433
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